Union Budget 2010 Impact on IT sector

Since the Tax Rebate has not been mentioned in the budget declaration and is expected to end on March 2011, the BPO players like Wipro, Infosys Technologies, Tata Consultancy Services, etc are estimated to incur losses from the budget announcements in future years. Another expectation which the FM failed to meet was the extension of STPI (Software technology Park of India) in IT sector, to which he counter argued by notifying the industry's growth in the last fiscal. Keeping this in consideration the government has hiked its factory gate tariffs. However, the allowance of Rs 1900 crore by the government to IT sector for UID (Unique Identity) project will be of great benefit and the declaration of the improvisation of national employment exchanges was welcomed by the industry. To attain the GST rollout by April 2011, the FM has called for the revamping of in-house work methods by both the central and state indirect tax governments. He suggested that the renovation should be based on the extensive utilization of Information Technology and also proposed the initiation of project ACES - Automation of Central Excise & Service throughout the nation in an attempt to impart precision in tax government and recovery in the release of taxpayer facilities. On the same note a project named Mission Mode has been initiated for mechanization of Commercial Taxes in States with an allowance of Rs.1133 crore out of which Rs.800 crore is allocated for Central government. The FM suggested the simplification of the method of repayment of accrued credit to service exporters by implementing required alterations in the characterization of service exports and methods.

impact on IT sector related to budget Computers and Mobiles The Special Additional Duty of Customs (SAD) of 4% on imported mobile handsets has been fully exempted. This should lead to a slight fall in mobile prices if the manufacturers decide to pass on the benefit to the consumers. The budget has also proposed to remove the 24% import duty on components imported for manufacturing batteries, chargers and other mobile accessories. On the other hand, the central excise on all non-petroleum products has been increased from 8 to 10%, which may end up eroding the tax savings on technology products due to the above mentioned points. IT There have been no specific announcements made which should affect the IT sector directly but the UIDAI (Unique ID Authority of India) project has been approved and Rs. 1900 crores have been allocated to it. The project will most likely be handled by Indian IT companies so this should be good. Also, Rs. 31000 crores have been earmarked for school education reforms in 2010-2011; which will probably be a boost for the IT sector in the long term. One of the best things about this budget seems to be that both the GST and the Direct Tax code will finally be applicable by April 2011. Im still browsing through the whole budget document. Will update this post if I find anything relevant.

INFORMATION TECHNOLOGY Current Status:

IT and ITeS export growth rates are expected to plummet due to the cut in IT spends in major developed economies and delay in decision-making cycles. Export revenue of IT services is expected to stay flat. The growth

rate of ITeS is expected to decelerate to 7-8% in fiscal year 2009-10. However, long-term prospects for the industry are promising. Continuing maturity of the global offshore delivery model, increased focus on targeting new markets and developing capabilities in emerging service lines such as infrastructure management services, and the inherent need of clients to reduce costs would together help propel growth, once the global economy recovers.

BUDGET IMPACT

The overal impact is expected to be marginally negative. The extension of the information technology tax exemption by a year to March 31, 2011, the scrapping of the fringe benefit tax and the removal of duty on packaged software, are favourable. However, the positive impact of extension is expected to be more than offset by an increase in MAT to 15%. Tier-II players would be relatively more impacted by an increase in the minimum alternative tax (MAT) rate compared with Tier-I players.

COMPANY IMPACT

Infosys Technologies - Loses I TCS - Loses I HCL Technologies - Loses I Firstsource Solutions - Loses I Zenith Computers - No impact