The union Budget 2010-11 neglected the telecom industry's special demands. Telcos were looking at a rationalisation of tax and levies, uniform license fee of one per cent of the AGR. Telcos wanted a re-look at direct tax, tax holidays and section 81 (A), a re-look at licenses and indirect taxes. As far as infrastructure products are concerned, oeprators were hoping for a boost in telecom infrastructure and wanted telecom to be included as part of infrastructure, so that all tax holidays applicable to infrastructure are applicable to telecom. Telcos wanted FM to remove bank guarantees for telecom.
However, most of the telecos welcomed several initiatives by the government that will assist the country to see more investments and improvement in GDP growth.
Telcos welcomed the Union Budget proposals 2010-11 terming it as progressive, long-term and providing the right thrust on social sector development, education, infrastructure, managing fiscal deficit, simplification of policies and convergence towards GST and Direct Tax Code.
Sanjay Kapoor, CEO - India & South Asia, Bharti Airtel, said: “I must congratulate the Finance Minister and the government for a pragmatic, broad based and inclusive budget. Despite an abnormal south-west monsoon hampering kharif crop resulting in negative growth in the agriculture sector and double digit food inflation, the fiscal deficit has been restricted to 6.9%. A long term focus on aggressive fiscal deficit reduction, addressal of government borrowings and continued focus on reforms redefines our budget as a process rather than an event. The disposable income benefits to the "aam aadmi" - both in urban and rural India - should stimulate demand for service sectors like telecom which in turn contribute handsomely towards the economic growth of this country.”
T R Dua, Officiating Director General, COAI said that while at a macro level the Budget seems to be growth oriented, however the concerns of the telecom sector with regard to the high tax burden still stay unaddressed.
As far as the telecom sector is concerned, Dua said that while the reduction in Corporate Surcharge would provide a minor relief, but at the same time the increase in MAT from 15% to 18% is a major are of concern. He further added that the increase in Central excise duty from 8% to 10% is another area of concern and will lead to an increase in cost of service. The continuation of exemption from basic, CVD and special additional duties (SAD) granted to their parts, components and accessories of mobile phones is a welcome step and would help towards penetration of affordable mobile service especially to rural areas. COAI welcomed the impetus given by the Finance Minister to the use of clean/ alternate energy. He stated that the initiatives announced by the Hon'ble FM would encourage greater use of alternate / solar energy in the telecom sector.
COAI also welcomed the initiatives announced by the Hon'ble FM for enhancing Financial Inclusion by providing appropriate Banking facilities to habitations having population in excess of 2000 by March, 2012. Mr. T.R. Dua, Officiating Director General, COAI, stated that the target envisaged by the Hon'ble FM could be achieved by allowing Mobile service providers to function as Business Correspondents. COAI emphasized that the mobile service providers could easily leverage their network of about 1.2 mn retailers to enable reach of banking services to the unbanked.
To address the difficulties experienced by film industry in importing digital masters of films for duplication or distribution loaded on electronic medium vis-a-vis those imported on cinematographic film, owing to a differential customs duty structure, customs duty to be charged only on the value of the carrier medium. The same dispensation would apply to music and gaming software imported for duplication. In all such cases the value representing the transfer of intellectual property rights would be subjected to service tax. Nitish Mittersain, CEO, Nazara Technologies, said that this should help the distribution of games from global gaming companies such as EA into the Indian markets. This would lead to increased number of global offerings and a pick-up in demand.
Rajan Sharma, Sales & Marketing MB BU, GIGABYTE India, said: “Given that the industry is still in a recovery mode the tax incentive should have been extended. The rolling back of excise duties may affect sales. There has been no proposal to abolish Special Additional Duty (SAD) across products which is discouraging. We are glad that the roadmap for GST has been finally unveiled, which is very critical for creating a single-India market. We hope for better involvement and engagement of the Government with the industry as the finer details of the GST is worked out."
Commenting on the same Ambrish Bakaya, Director- Corporate Affairs, Nokia India said, " The Union Budget 2010 is a progressive and growth oriented budget reflecting the Government's commitment towards driving inclusive growth and a strong development focus, along expected lines. The Budget has addressed key areas including education reforms, infrastructure spending, rural sector and supported overall business and consumer concerns, including a focus on bringing back fiscal discipline and prudence.
The Union Budget 2010 has also responded positively to the industry's request on manufacturing of parts and accessories of mobile handsets in India. The budget proposes to remove the 24% import duty on components/raw material imported for manufacture of batteries, chargers and other part and accessories. The will help bring more investment in the area to the country and encourage domestic manufacture of parts and accessories, he added further.
According to Rajesh Janey, President, Sales, India & SAARC, NetApp, This year's budget was mostly a calm budget for the IT industry. The good part is that it reflects strong flavor of social inclusion signaled by the focus on development fund and allocation for the education segment. This is a welcome move and bodes well for uniform social growth. The attention to infrastructure development is a continued note in the budget bouquet, and one that has shown results already.
The Finance Minister's fine balancing act is visible in the budget proposals where on the one hand he has clearly set the roadmap for fiscal consolidation by setting the targets for fiscal deficit reduction over the next three years, raising resources for capital expenditure by setting disinvestment targets and partially rolling back the excise duty stimulus and on the other hand, he has set the stage to address productivity issues in agriculture, putting more disposable income in the hand of aam aadmi, to ensure positive environment for growth. We welcome the Union Budget 2010-11, according to Chandrajit Banerjee, Director General, CII.
The FM has done a commendable job of partially withdrawing the stimulus by balancing this with various schemes which should accelerate GDP growth. The focus on the rural economy with substantial & higher allocations will more than make up for the slack in demand, if any, due to the marginal increase in the excise duty rate. This budget will lead to an increase in the feel good factor which is believed to play an important role in increasing the demand of consumer products. It is very heartening to note that the cost of mobile phones will come down and will further boost demand and encourage local manufacturing. “I am disappointed, however, by the lack of adequate attention to promote the local manufacturing of IT hardware and to increase domestic consumption of PC.I feel that the economy now requires for inclusive growth not only inputs in agriculture and rural infrastructure but also in IT literacy and IT infrastructure. India has been talked of as a knowledge economy. And a knowledge commission was also set up to chalk out various initiatives. The small increase of weighted average expenditure deduction on in-house R & D from 1.5 to 2 % only encourages ongoing R & D activities. The FM could have thought of additional incentives to lure large foreign corporations and research institutions to set up their facilities in India,” Ramesh A Vaswani, executive vice chairman, Intex Technologies India, said.
“We are delighted that the Finance Minister has recognized the key role our industry can play in driving technology led inclusive growth across the country, apart from directly contributing as an employment generator and foreign exchange earner. The announcement of the Technology Advisory Group under Mr. Nandan Nilekani, automation of central excise, GST and commercial taxes will enable the vision of citizen centric governance. Our industry will partner with the government to drive inclusive growth within India, while continuing to be the leader around the world in IT and business process solutions,” Pramod Bhasin, Chairman, NASSCOM, said.
“There are numerous positives for our industry in this budget, particularly on simplification. The removal of anomaly in Section 10AA of the SEZ Act and the Finance Minister's reaffirmation on the importance of SEZs will help the industry to take forward its SEZ plans across the country. The enhanced deduction on R&D investment will propel greater thrust on innovation and IP creation helping India to realize its vision of being the global R&D services hub”.
The reduction in personal income tax will greatly benefit the employees in our industry who will help to drive both enhanced savings and consumption within India. At the same time, the clarification on duty applicability for pre-packaged software as well as service tax refunds will provide the much necessary simplification of policies. While overall the budget is positive, we are disappointed with the increase in MAT which will be a burden on small and medium businesses who are still struggling with the impact of the global recession. There was also no move towards announcing parity of incentives between the STPI and the SEZ scheme which is again necessary for small companies and development of tier 2 and tier 3 cities. In line with our recommendation, the IT Taskforce formed by Department of Technology (DIT) had also strongly recommended that the STPIs be brought at par with the SEZs. The tax benefits under the STPI Scheme are available till March 31st, 2011 and we will engage with the Government and through the Ministry of IT to represent for an equitable benefit to the SME sector, according to Som Mittal, President, NASSCOM.
According to Partha Iyengar, Head of Research, Gartner India, overall this is a fairly positive and balanced budget from a broader Indian economy perspective as well as from the narrower IT industry focus. There is also a more balanced emphasis on 'Bharat' as opposed to 'India' which is a good move, since 'inclusive growth' is needed to reduce the gap in the digital or urban VS rural divide. There were no specific 'big bang' measures specifically from an IT perspective, but that is also not a bad thing, since, as I'd indicated in my pre-budget comments, the industry is beyond needing specific sops for it to remain competitive and continue its growth story. The bigger need for IT in India is in some of the broader macro areas, that also impact the overall competitiveness of India in the global scheme of things. And this is likely to be the trend going forward, that there will not be a 'separate list' of things that the IT industry needs to continue to be successful. What is required for India and what is good for overall economic growth of India will be what is required for the IT industry. Budget watchers should now stop looking for specific 'sops' for the industry and focus more on the macro issues affecting the entire economy, as an indicator of the positive or negative impact on the IT industry.
Rostow Ravanan, CFO, Mindtree, says it is a positive budget. Positive, because there's nothing in it to feel concern about. Some of the welcome announcements for the IT sector are: Allocation of Rs 1,900 crore towards the implementation of the UID project. Setting up of a committee to oversee investment in IT infrastructure in the government sector. These steps will not only provide the necessary boost to the domestic IT Services industry but also provide benefits to the common citizen with increased efficiency in delivery. It's also good to note that the government has reiterated its commitment to SEZs. Anomaly in taxation for SEZ has been corrected with retrospective effect. This has been a long-pending demand of the industry and we are happy that it has been accepted. One of our key expectations was that the taxation of ESOP should be changed from the date of exercise to the date of sale. This has not been done. We hope that it will be taken up and implemented soon.
According to Deepa Doraiswamy, Industry Manager - South Asia & Middle East Program Manager - South Asia and Middle East, Frost & Sullivan, while direct tax sops are the prime highlights of the Union budget 2010-11, the announcements from the finance minister on the indirect tax front are likely to bring in fresh debate especially, the excise duty reforms in the crude oil segment. Topping the announcements was the roll back of standard excise rates from 8 to 10 percent. The industry's reaction on this is not likely to be positive though the contribution to the Government's kitty from Indirect Taxes is going to be significant. The electronics industry has very little bit to cheer about from this populist budget. Government's focus on energy conservation was evident from the announcement of 50 percent reduction in excise duty from 8 to 4 percent for LED lights, which is expected to be a major boost to sales, as price of LED lights is likely to come down following the excise duty revision. Similarly, the exemption of excise duty on photovoltaic panels and reduction in customs duty to 5 percent for all equipment needed for solar PV panel production is expected to increase India's footprint in the Global PV production landscape. Preferential treatment meted out to mobile phones is likely to further increase the penetration of mobile phones in the country. In addition, the reduction in duty from 10 to 5 percent for magnetrons, a critical component in the microwave oven is expected to increase the level of local manufacturing of microwave ovens and aid in price reduction. The Government has been emphasizing on local innovation and this was apparent through certain measures announced in this budget. Chief among them is the increase in weighted deduction on expenditure incurred on in-house R&D from 150 percent to 200 percent. This shall influence companies to invest more in research and new product development and pave way for more outsourced R&D activities to flow into the country. Since the Electronics industry is one of the R&D intense segments, this favorable increase in deduction for R&D is expected to be appreciated; however, it would have been even more welcome if the Government had allowed higher weighted deduction for amounts incurred in excess of base amounts spent in R&D in the previous year. Some of the missing elements as far as the electronics industry is concerned are higher tax and duty reforms that were much anticipated as well as a boost for local electronics manufacturing in the form of enhanced subsidies and/or a National Electronics Fund.
MAIT expressed satisfaction for the thrust given to infrastructure development, upliftment of the rural economy and significant outlay for promotion of the social sector, especially education and healthcare. Further, it also appreciated the focus in Budget on New and Renewable energy and announcement of proactive measures for environment conservation. We are glad that the Finance Minister has unveiled the roadmap for GST with a definite date for implementation i.e. April, 2011. Unification of the rate on excise duty and the service tax has been a step in the right direction towards implementation of the GST. The rate of service tax as well as that of excise duty will now be 10%. This will also help mitigate the issue of CENVAT overflow for manufacture of IT products in the country.
Elaborating on the outcome, he added, “Exemption of Special additional Duty (SAD) on pre-packaged goods for retail is also a welcome step as refunds for SAD were not forthcoming. However, to sustain hardware manufacturing in the country in the long run, it is critical that SAD on the input components be exempted as well. It is heartening that the Hon'ble Finance Minister has recognised the strong potential of the electronics industry and its role in energy generation. In this regard, the announcement of concessional customs duty of 5 percent on machinery, equipment etc. for setting up photovoltaic and solar thermal power generating units is welcome. Lastly, MAIT welcomes the setting up of the Technology Advisory Group under the chairmanship of Mr Nandan Nilekani for monitoring effective IT implementation in projects of National eminence. Timely completion of IT implementation in Government projects is not only critical to the growth and development of the country but also essential for delivering services to the citizens. Some of the other noteworthy outcomes of the Union Budget 2010-11 include : Extension of weighted deduction on expenditure on in-house R&D from 150% to 200% and exemption from basic customs duty, CVD and SAD on parts of battery chargers and hand-free headphones for the mobile phone industry until March 2011. This will enable backward integration in the sector, Vinnie Mehta, Executive Director, MAIT, said.
“We are pleased at the earnest effort to introduce GST from April 2011. The continued focus on deployment of Information Technology for mission mode projects like commercial taxes augur well. Increased budget for the UID and the formation of the technical advisory group under the able leadership of Nandan Nilekani is laudable. We are also happy to see significant enhancement in funding for education and rural and urban infrastructure, which will drive demand for Information Technology,” Manoj Chugh, President, India and SAARC, EMC Corporation, said.
Overall, from an economic perspective, I am happy that the government has specific dates for implementation of direct tax codes, GST. Fiscal deficit retained at 5.5% will help contain inflation. Emphasis on growth to 9% of the GDP is commendable. Infrastructure funding for power and education sectors will have a direct impact on our industry and aid in the growth of the BPO industry. On the downside,I am disappointed that the 10 year tax holiday under Sec 10A and 10B has not been extended further as well as the increase in MAT from 15% to 18%. Direct tax benefits for income levels below Rs 8 lakh will benefit many of our employees and others in the BPO industry as they will now have more disposable income which will boost domestic spending. This will also have an impact on the domestic BPO industry as growth of domestic industry is dependent on domestic consumption of goods and services. I am disappointed that the tax holiday under Sec 10A and 10B has not been extended. The BPO industry is a young industry as compared to the IT industry. A .longer term extension of the tax holiday would have certainly been beneficial considering our export-oriented revenues have been affected by the global recession as well as pressure on price. We are also disappointed that the Minimum Alternate Tax (MAT) has been increased from 15% to 18%. On a positive note ,the direct tax breaks for employees with salary levels less than Rs 8 lakh will help employees have more money in hand for consumption and savings. I am also happy that the service tax has been retained at 10% and the process has been streamlined to enable exporters to get a quicker refund, said Ramachandra Panickar, Chief Financial Officer, Intelenet Global Services.
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