In a bid to promote relocation of IT firms to Special Economic Zones (SEZ),the government is planning to provide tax concessions only to companies within the zones. The move,aimed at taking the sector to a higher growth trajectory and enabling it to secure bigger share of the global pie,is also likely to make SEZs viable as majority of the zones are designed to meet requirements of the IT sector. As of now,profits earned from exports of IT/IT Enabled Services are entitled to Income Tax exemption under Section 10 (A) and 10(B) of the I-T Act under Software Technology Parks of India (STPI) scheme. It offers tax exemption to Export Oriented Units under the Act,which was extended by a year till March 2011. Under the SEZ policy,in the first five years 100 per cent tax exemption is granted and 50 per cent for subsequent five years. So far the exemption,which was first announced for five years,has already been extended twice once for five years and then for another one year,which expires on March 31. Sources indicate that the government intends to extend the exemption,subject to the condition that the service provider shifted to a SEZ. Industry representatives are apprehensive that the move can destablise the marginal players as stiff competition has already squeezed margins and shift to a SEZ would mean increase in expenditure. As of today,the sector has an annual turnover of around $60 billion,in which smaller players have a substantial share. This is what has particularly upset the IT industry body Nasscom,which has sought for extension of benefits under STPI and simplification of tax structure to encourage investments in the sector as part of its Budget wish-list. The software industry has requested the government to extend the STPI scheme till the Direct Taxes Code,which is under consideration,was implemented. A CEO of a mid-sized IT firm told The Indian Express that the re-location to any SEZ could be a costly exercise. Not only the re-location cost,but shifting the entire set up would entail a sizeable expenditure. I guess not many small and mid-sized firms would be able to bear the expenditure, he reasoned. Justifying the demand,an official of Nasscom argued that not extending the scheme could spell trouble for small and medium IT company. While the bigger players have moved over to the SEZs following expiry of the benefits,it might not be viable for the smaller ones.
