STPI WITHDRAWAL MAY HIT INFOSYS, WIPRO NET PROFIT
Bangalore
The Economic Times (Delhi edition)
Top Indian software exporters—Infosys and Wipro—have cautioned investors about a potential impact on their profitability because of higher tax rates, as the country’s over $40 billion IT industry prepares to cope with removal of tax holiday under the Software Technology Parks of India (STPI) scheme due to expire in March 2010.
“Our net income would decrease if the government of India imposes additional taxes or withdraws or reduces tax benefits or other incentives,” India’s third-biggest software company, Wipro, said in a recent regulatory filing with the US Securities and Exchange Commission (SEC). Indian exporters have made significant tax savings under the STPI scheme during past few years.
For instance, these tax incentives resulted in a decrease in Infosys’ income tax expense to the extent of $325 million and $282 million for fiscal 2009 and 2008, respectively.
“Certain of our STP units have already completed the tax holiday period and for the remaining STP units the tax holiday will expire by fiscal 2010,” Infosys said in its regulatory filing with SEC.
“In the event that the Government of India or the government of another country changes its tax policies in a manner that is adverse to us, our tax expense may materially increase, reducing our profitability,” Infosys added.
Experts such as Partha Iyengar, head of research at Gartner India say any ambiguity around extension of STPI scheme could impact India’s attractiveness as an outsourcing destination.
“STPI is an important and critical issue to be addressed; hopefully the new government will do it soon. They need to rationalise the SEZ scheme and provide more clarity on tax incentives. Many of our customers are not sure if they should move their captive operations to SEZs because of lack of clarity,” he said.
The Special Economic Zone (SEZ) policy of the government provides five year tax holiday for the IT units, followed by gradual taxation after the fifth year. “There have been demands to impose strict conditions which need to be complied with before an economic zone developed by a private entity is designated as special economic zone. If such regulations or conditions are imposed it would adversely impact our ability to set up new units in such designated special economic zones and avail ourselves of tax benefits,” Wipro added in its SEC filing.
SMART CITY: TECOM DEMANDS ILLOGICAL, SAYS SARMA
Kochi
The Pioneer
The prospects of the materialization of the Rs 15-billion Smart City Kochi IT park project became bleaker with more adverse statements coming from the Kerala Government, facilitator and joint venture partner, against Tecom (Technology and Media Free Zone), Dubai-based promoters.
Even as the Tecom authorities stood irked by the Government’s earlier statements, Registrations Minister and chairman of the Smart City Kochi company fired another salvo against the Dubai firm by saying that he suspected it was putting forward newer demands owing to its financial difficulties in the context of the global recession.
Chief Minister VS Achuthanandan had earlier invited flak from the company for making such an allegation. Tecom was remaining firm in its position that it would not do anything to set up the project, envisaged to provide employment to 90,000 in ten years, unless and until freehold right was given to it on 12 percent of the 246-acre project area.
Sarma said on Monday that the Government would in no circumstance consider any demand which was outside the clauses specified in the framework agreement signed with the company for installation of the IT park project. He said nobody should think that the Government could be pushed to a spot through bargaining techniques.
The Minister alleged that the project was getting delayed because Tecom was putting forward newer and unacceptable demands. He said that the demand of freehold over land could be considered but not until the finalization and approval of the master plan of the project.