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Nasscom for extending tax sops beyond 2009
December, 19th 2007
Continuation of STP scheme will help India sustain BPO sector growth, it says

Pre-Budget wish-list

Seeks broadening of the eligibility criteria for Large Tax payer Unit scheme.

Wants STP tax holiday removal for the IT sector to be linked to the signing of the totalisation agreement with the US Government.

Urges the Government to set up a mechanism for advance pricing agreements on transfer pricing issues.

Software association Nasscom today asked the Government to extend the Software Technology Park (STP) scheme and tax sops under Section 10 A/10 B for the next 10 years beyond 2009, saying the continuation of the scheme would provide a level playing field between India and other competing nations, and help sustain the growth of the BPO sector.

In its pre-Budget memorandum submitted to the Government, it said that the smaller companies were finding it difficult to rent Special Economic Zone (SEZ) space as enough capacity was not always available at the right location.

Other countries are offering big inducements to attract MNCs and Indian IT-BPO companies. These include tax holidays, free space, reimbursements of salaries and of training costs. Most also have a superior infrastructure resulting in lower operational costs, Nasscom said.

It further pointed out that the STP tax holiday removal for the IT sector (not BPO) could be linked to the signing of the totalisation agreement with the US Government. Even the Kelkar committee had recommended this. This is a substantial cost for the industry and puts Indian IT companies at a competitive disadvantage when compared to global peers, it said.

The software body also sought broadening of the eligibility criteria for Large Tax payer Unit (LTU) scheme saying that the current eligibility criteria was very restrictive, and several large IT companies employing more than 10,000 people and facilitating tax collections of several hundred crores in TDS, FBT, Input Service Tax and Customs, were not entitled to join the scheme.

Similar to the existing mechanism for issuing advance rulings to provide certainty on issues of tax interpretation and principles, we urge the Government to set up a mechanism for advance pricing agreements on transfer pricing issues. This will provide much needed tax certainty and avoid protracted litigation against transfer pricing adjustments at the field level, it said, adding that countries such as the US, Canada, Mexico, almost all European countries and China, Taiwan, Korea, Japan and Australia had this as part of their tax legislations.

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