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Extend tax holiday to STPI registered units
February, 21st 2007

Mr V. Balakrishnan, CFO, Infosys Technologies Ltd

The software industry has traditionally been the blue-eyed boy of the Finance Ministry. Rarely has it had to ask for something and not be granted it. This time around, the debate around benefits accorded to the STPI (for which scheme tax holidays end in 2009) and those available for the SEZ scheme has picked up steam.

In addition, the IT industry is facing the heat on two other fronts: the need to move into tier II locations to further contain costs and, simultaneously, having to attract adequate, quality manpower.

Business Line checked out the scene with two companies, each of a different size, to learn the dynamics governing the industry now. Mr V. Balakrishnan, CFO, Infosys Technologies Ltd, and Mr N. Ramachandran, CFO, iGATE Global Solutions, give us their opinions:

STPI vs SEZ. What do you expect out of the Budget on this front? Till when would you want the STPI (Software Technology Parks of India) tax benefits extended up to? Another 5 years or 10 years?

Mr N. Ramachandran, CFO, iGATE Global Solutions

Infosys: NASSCOM, the industry body, had asked for an extension of the existing tax holidays for a further period of 10 years. Nasscom's views reflect the views of the whole industry.

iGATE: The withdrawal of tax holiday to STPI registered units will adversely impact their competitive positions in general, more particularly, for the smaller exporters. To establish in special economic zones would require extraordinary investments in infrastructure that would result in unviable operations for some and uncompetitive positions for many others in the industry in India.

At a time when the Indian IT industry is poised towards consolidating its leadership position by entering newer markets and ITES is just about entering the higher end market space, the Centre will do well to extend the tax holiday to STPI registered entities. Further, the growing competition to the Indian IT and ITES exporters from some of the Asian neighbours cannot be underestimated. The Indian IT and ITES industry would require some years to reach a sustainable leadership position in the world and accordingly the Centre should extend the tax holiday for at least 5 to 10 years to aid this pursuit.

What is the level of investment that is being held in balance due to the lack of clarity on this front? In other words, if the STPI benefits were to be extended beyond 2009 and even beyond the time frame for benefits accorded to SEZs, what is the rush of investment that we could expect to see?

Infosys: It is difficult to quantify. STPs are not seeing any slowdown in the number of new companies registering with them. The industry is still growing at a respectable level. I think the lack of clarity on this front, one way or another, is creating some kind of a (un)certainty with new investors.

iGATE: In view of the current uncertainty with respect to the extension of tax holiday beyond 2008-09 to STPI registered units, several investment proposals have been put on hold. The Centre should make the announcement in the forthcoming Budget. If the tax holiday is extended to STPI registered units beyond 2008-09, the investments in the IT and ITES sector will see a significant spurt.

To expand to tier II cities, what is the kind of support you expect from the Government? In terms of infrastructure, (roads, power, connectivity). Any sops that would encourage more of you to go to Tier II and III cities?

Infosys: The availability of good education infrastructure in terms of schools and colleges is a must. Also, availability of qualified people in terms of engineering graduates and other graduates is a necessity. Apart from this, they should have better infrastructure and connectivity in terms of airports for people to travel. We are in a people business and availability of highly skilled employees is the primary criterion. No amount of sops can substitute that.

iGATE: Physical infrastructure such as roads, airports, adequate supply of power, water, high speed and connectivity are vital needs to attract knowledge-based industries to Tier 2 and 3 cities. More importantly, the manpower intensive IT industry will need supply of employable resources and self contained integrated townships to attract and retain talent.

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