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Rediff News  All News  » Business » Budget 2013: Reducing MAT to help IT get back on growth trajectory

Budget 2013: Reducing MAT to help IT get back on growth trajectory

February 26, 2013 18:03 IST

Information technology (IT) and IT enabled services (ITeS) is one of the sunrise sectors of the Indian growth story.

Both have played a key role in putting India on the global map and transformed India’s image from a slow moving red tape bureaucratic economy to a land of innovative entrepreneurs.

There is no denying the fact that India’s IT potential is on a steady march towards global competitiveness but the industry is looking at the upcoming annual budget with expectations of clarity on future direction supporting the impending growth.

Promoting domestic product development in the Indian IT industry could very well be the surprise element in the annual budget of 2013.

Such an endeavor which has been on the wish list of all smalltime to major Indian developers has been largely ignored with the Budget getting its focus on the global perspective.

With the global markets in recession, it’s the best time for the finance ministry to think on the lines of a dedicated domestic product development tax sops.

Lack of role clarity on the software royalty aspects has been the sore point of the Indian IT industry for a long time.

Termed as populist budget, the annual budget of 2013 could very well address this long pending demand of the IT industry.

The chances for such a positive move may have some short term sore points including a tax burden and possible litigations on some IT companies.

But in the long term it would provide a happy hunting ground for all IT players including industry giants like TCS, HCL Tech, Sonata software as well as the upcoming new companies.

Possible reduction of the Minimum Alternate Tax (MAT) on SEZ units is one of the most eagerly awaited decisions by a majority of the IT industry majors.

The Software body Nasscom has already urged the government to withdraw the Minimum Alternate Tax (MAT) from the existing 18.5 per cent in order to help create conducive environment for the growth of the Indian IT-BPO sector.

If the finance ministry takes heed of the Nasscom request and reduce the Minimum Alternate Tax on SEZ units to 10 per cent, it can be an provide an effective boost to not only the SEZ growth but also the IT industry as a whole.

One of the most likely decisions in support of the IT industry in the current budget can very well be the abolishing of the inverted duty structure.

Under the existing rules, finished IT goods are taxed at lower rates than raw material for certain items like computer components. The duty structure, if relaxed is likely to help revive the subdued demand and promote manufacturing in the country.

Once the inverted duty structure is abolished for good, PC or laptop imported will attract lower duty compared to what motherboards, cabinets etc will attract.

Abolishing this structure would likely encourage manufacturing of hardware components and help revive subdued demand.

Likewise the likelihood of abolishing of the basic customs duty is on specific hardware accessories like adapters, battery, laptop carry bags and speakers is largely expected.

Presently only finished products like laptops and peripherals are exempted from BCD and the industry is looking forward to enhancing the exemption umbrella that can help in reduced hardware pricing enabling in higher sales.

Increase in the government spending on e-governance is also a likely positive move to come out in the 2013 annual budget.

The move if supported by the government would not only add to its next generation governance capabilities but would also provide a positive impetus to a number of service providers including industry majors like TCS, Educomp, Everonn and Mindtree amid a number of smaller players.

Railway Budget, as it unfolded on February 26

Complete coverage: Union Budget 2013-14

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