Bangalore
March 1, 2007

The initial reaction of the IT industry towards the budget was mixed. TV Mohandas Pai, board member of Infosys, said, "Personally I think it is a mixed budget. Government has not taken any bold initiative, very unkind to corporate sector. Budget was given more emphasis on the social sector."

Wipro COO Suresh Senapaty considered the tax proposed on Indian software services exporters was a retrograde step and demanded it to be scrapped.

However, the budget received six points out of 10 from Alok Shende, Director- ICT Practice at Frost & Sullivan India. "With the introduction of MAT (Minimum Alternate Tax) every IT company has to pay tax. Tax holiday, which was given for the IT industry, has helped this sector and personally I feel that IT companies can pay the tax."

Commenting about the employee stock option plans coming under the fringe benefit tax regime (FBT) he said that this was expected. "In a way, ESOPs makes way for the wealth creation. The government feels that it has all the right to tax which heals in wealth creation."

"The Finance Minister's budget speech reinstates the industry's confidence in the Government's thrust on reforms and investments to accelerate the pace of overall economic growth," commented Manoj Chugh, President, EMC, India and SAARC. He said the focus on egovernance, education infrastructure development and innovation through higher budgetary allocations is a positive signal for the technology sector.

These steps will provide further impetus to Information infrastructure and technology spend in the country as well as augment talent creation in the IT Services industry, thus supporting its long term growth. "Additionally the spotlight on R&D in the technology sector will help drive IP innovation in the country, he added.

"The corporate sector has nothing major to cheer about -- what with the increase in dividend distribution taxes and ESOPs coming under the FBT net," feels Gowri Shankar Subramanian, CEO, Aspire Systems.

"Specifically, for the software industry, there is no mention on the status of the 10A exemption beyond 2009. Also, infrastructure – one of the burning needs of the hour – has been shortchanged with no major initiatives," he said.

Mixed bag
"The Union Budget 2007-08 is a mixed bag for the IT sector," said Sandeep Arora, Lead Executive, Accenture Delivery Centre for Technology, India. "All technology firms have been brought under the ambit of the minimum alternate tax. For big IT firms, the impact will not be much since they are already paying 12% tax. However, the introduction of MAT will impact the net profit of small and medium-sized IT firms."

Arora welcomed the renewed thrust on education. For the employees of IT firms, ESOPs will now come under the ambit of the fringe benefit tax. So the income-tax burden of employees who own ESOPs will increase.

"On the flip side, venture capital funds that make investments in information technology start-ups relating to hardware and software development have been granted a pass-through status. This should encourage more VC funds to invest in IT start-ups," he added.

Moon Shin, MD of LG Electronics India, said the Budget 2007 was not very favorable to domestic industry and trade. Also increase in education cess from 2% to 3% would prove to be an additional burden to the common man and corporate alike.

"The budget has not provided any incentive for exports acting as a hurdle in India emerging as an export hub. No sops have been announced to curtail the effect of the inverted duty structure," he said.

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