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IndianIT/ITeSIndustryExpiryofincome-taxholiday:needsare-examination
KPMG IN INDIA
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TherapidriseoftheIndianIT/ITeSsectoroverthepastdecadehasbeenwidely
recognizedandreported.Notonlyhasthissectorperformedstupendouslywell,it
hasalsoearnedIndiaplentyofacclaimforthescopeandscaleofwork
undertaken,highlevelsofservice-qualityandsustainedcostcompetitiveness.
AsperNasscomandCRISIL,theIT/ITeSsectoremploysabout2million
professionalsmakingitthelargestemployerintheorganisedprivatesectorof
thecountry.Theavailabilityofdisposableincomehasboosteddemandand
generatedsubstantialindirectemployment.
InadditiontothecosteffectiveandhighlyskilledlabouravailableinIndia,the
income-taxholidayprovidedtotheIT/ITeScompanieshasbeenamajordriving
forcebehindthegrowthofthesector.
Today,therearemultiplechallengesbeforethesector,rangingfrommacroto
microissuesanditremainstobeseenwhetherthesectorisselfsustainableand
abletogrowwithoutanysupportintheformofincome-taxholidayunderSection
10A/10BoftheIncome-taxAct,1961,whichiscurrentlysettoexpireon31
March,2010.
KPMG,partneringwithCII,haspreparedthisdiscussionnote,documenting
variousaspectsoftheexpiryoftheincome-taxholiday.Thisreportaimsatgivinga
balancedperspectiveontheextensionoftheincometaxholiday,withthehope
thatthereportwouldbeusefulintermsofhelpingthepolicymakerscomeout
withasuitableproposal.
Foreword
Russell PareraChiefExecutiveOfficerinIndia
KPMGinIndia
Uday VedHeadofTax
KPMGinIndia
2008 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
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TheIndianIT/ITeSindustryhascomealongway.Indiahasbeenafavoured
offshoredestinationforoutsourcingITandITeSwork,thankstoanexcellentwork
forceandconducivetaxenvironmentintheformoftaxholidaybenefitsgivento
thisindustrybytheGovernmentofIndia.TheIT/ITeSindustryhasbeenenjoyingataxholidayundertheSoftwareTechnologyParkofIndia(STPI)andExport
OrientedUnit(EoU)schemes.
WiththesunsetclauseundertheIncome-taxAct,1961,restrictingtheincome-tax
holidayundersections10A/10B(relatingtoSTPIs/EoUsrespectively)beyond31
March,2010,thefutureoftheIndianIT/ITeSindustrydoeslookuncertain.Is
thereaneedforcontinuationoftheincome-taxholiday?WilltheSEZscheme
effectivelysubstitutetheexpiringincome-taxbenefitundertheSTPI/EoU
schemes?Thesearesomeofthequestionstheindustryisgrapplingwith,at
present.Expiryofsection10A/10BwouldtoughencompetitionforIndiavis--vis
otherjurisdictions.SincethemajorityoftheIT/ITeSindustryoperatesonasmall
ormediumscale,thereareconcernsrelatingtotheeffectivenessoftheSEZ
scheme.
CIIinassociationwithKPMG,theknowledgepartner,haspreparedareporton
thisissue.Thisreportreflectstheresultsofanindependentsurvey(titledas
ProjectStake)carriedoutonIT/ITeScompaniesinIndia.
ThisreportaimstoillustratetheconcernscurrentlyfacedbytheIT/ITeSindustry,
inordertohelppolicymakerstaketherightmeasurestowardshelpingIndiaretain
itscompetitiveedgeinthissector.
S ViswanathanChairman
CII,Karnataka
K R GirishConvenerforEconomicAffairsand
PublicPolicy
2008 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
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Executive Summary 01
Introduction and Overview 03
Income-tax policy on IT / ITeS Sector 09
Challenges before the IT / ITeS Sector 13
About the Survey 16
Analysis of the Survey Results 17
Conclusion 25
Comments from Industry Leaders 26
Appendix 28
- Data sources and references
- Glossary
Contents
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1
TheIndianIT/ITeSsector(alsoreferredtoasthesector)ispredominantlyexport
oriented,leveragingthecostarbitragetodeliversolutionsandservicestoclients.
Thegrowthinthesectorhasbeenlargelyduetofactorssuchashighquality
Englishspeakingskilledlabour,lowcostbaseandincreasingadvantageaccruing
fromthelearningcurve.
Atpresent,thesectorinIndiaispoisedtobecomeanepicenterforIT/ITeS
activities.However,theIT/ITeSsectorinIndiaisfacedwithseriouschallengeson
manyfrontsincreasingcompetitionfromotherjurisdictions,fastdiminishing
costadvantageandshortageoftrainedtalenttonameafew.Sofar,ithasshown
resilienceandkeptpacewiththeestimatedgrowthtopotentiallyachievethe
targetssetoutfor2010.
However,expertsareskepticalaboutwhetherthesectorhasmaturedenoughto
beabletostandtallagainstthesechallengeswithoutanyfiscalsupport,andstill
proliferate.Evenotherwise,thereisstillalongwaytogoasthereisahuge
untappedmarket.ItissurprisingtonotethatIndiasITexportsasapercentof
globalITspendislessthan2percent.1
Leavingasidetheissuesintrinsictothissector,onecannotlosesightofthe
contributionthatthissectorhasmadetotheemergenceofIndiaasaneconomic
power.Inlessthanadecade,thesectorscontributiontotheGDPhasincreased
manifold,nowcontributingmorethan5percentoftheGDP.Withanexpected
exportofUSD40billionin2007-08,thesectoraccountsforonefourthofthe
countrysexports1.
OneofthereasonsfortheemergenceofanewmiddleclassinIndiaisthevast
direct(estimatedat2million)andindirectemployment(estimatedtobefour
timesthatofdirectemployment)createdbythesector.Nodoubtthishasbeena
greatthrusttogrowingconsumerism,thusdrivingothersectorslike
infrastructure,realestate,automotivesandtheconsumergoodsindustry.
TheresultsoftheSurvey(ProjectStake)carriedout;clearlyrevealthatthesectorfeelsthatthereisstillneedforfiscalsupportbywayofextensionoftheincome-
taxholiday.Theexpiryoftheincometaxholidayisseenasoneofthebiggest
challengesforthesector.
Executive Summary
1 Nasscom data
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2
Someofthekeyresultscomingoutofthesurveyare:
Thereseemstobeaconsensusamongsttherespondentsthattheexpiryof
theincometaxholidaywillresultinloweringIndiasattractiveindexasthecost
ofdoingbusinesswouldincrease
Thepressurewouldbecomparativelyhighonthesmallandmedium
companies,whoamongothers,maynotbeabletoeffectivelyleveragethe
SEZscheme
Almosttwo-thirdsoftherespondentsbelievethattheexpiryoftheincome-tax
holidaywillhaveanadverseimpactonrecruitmentsand
ThedemandforanextensionoftheSoftwareTechnologyParkofIndia(STPI)
andExportorientedunit(EoU)schemesismoreskewedtowardsassistingthe
smallandmediumcompanies.
Itisestimatedthattheannualadditionalincome-taxrevenuetotheGovernment
onaccountofexpiryofsections10Aand10BoftheIncome-taxAct,1961(the
Act)wouldrangebetweenINR15,000to20,000crores.TheGovernment
thereforewouldhavetodoabalancingact,andseewhetherthisincrementaltax
revenuewouldjustifydoingawaywiththeincome-taxholidayalltogether,
especiallygiventhefactthattheperformanceofthissectorhasasignificant
effectonthewholeeconomy.
AwellthoughtoutstrategicmovefromtheGovernmentcanhelpthecountry
maintaintheedgecreatedbythesectorintheglobalmarketandpositionIndiaas
theleadingproviderofIT/ITeSservices.
2008 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
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Introduction and overview
Today,Indiaisoneofthefivecountriesthatshare50percentoftheworld
production.2 Thegrowthstoryhasbeendrivenprimarilybyrobustgrowthinthe
servicessector,andtoalesserextent,themanufacturingsector.
ThemostevidentgrowthhasbeenobservedintheIT/ITeSsector,whichwas
expectedtoabletosustainitsgrowthmomentumovertheyears.Apartfromthe
significantcontributiontotheeconomy,thesectorhasalsogivenbirthtoanew
leagueofentrepreneurs,whohavebeensuccessfulinspreadingtheirwings
globally,puttingIndiaonthemapofglobalserviceproviders.
Someofthefacetsofthesectorhavebeendiscussedinthefollowingparagraphs.
Size of the SectorThesectorisexpectedtocrosstheUSD50billionmarkin2007-08.Theprojected
breakdownfortheverticalsisasbelow(thefiguresexcludethehardware
category).
Veryclearly,ITservicescontinuetobethelargestverticalofbusinessinthe
sector.
Composition of the SectorIndiahasaround5,000softwareandsoftwareservicescompanies.Thecountof
companiesisskewedtowardsagreaternumberofsmallandmediumcompanies,
whoaretusslingtomeetthechallengesinincreasingtheirtoplineandthebottom
line.Ontheotherhand,thelargeIndiancompaniesdominatethemarket,and
currentlycontributearound45percentofthetotalITexportsfromthecountry.3
Thesectorhasalsobeenabletolurealargenumberofmultinationalscaptives
aswellasthirdpartyserviceproviders.
Vertical Amount in USD billion
ITServices 31.0
BPO/CRMactivities 12.5Engineeringservices,R&Dandsoftwareproducts 8.5
Total 52.0
2 GDP on PPP basis, source:Wikipedia website3 Nasscom and IBEF data
3
Contribution to the GDP by the IT/TeS Sector ( all figures are in % )
ThegrowingcontributionbytheIT/ITeS
Sectorisclearlyvisible
Source:Nasscomdata
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Export and domestic marketsAfteralongwait,Indiasshareintheworldtradehasgoneonanincreasing
trajectory,andisexpectedtocross2percentin2008-2009.Withthetotalexports
expectedtobearoundUSD150billionfor2007-08,ifoneweretogobypress
articles,theUnionMinistryofCommerceandIndustryistargetingUSD200
billionfor2008-09.
Thegrowthinexportshasonceagain,beenprimarilypropelledbytheservices
sector.Needlesstomention,theSoftware,BusinessandFinancialServices
sectorshaveplayedapivotalroleinthisregard.
TheexportsearningsoftheIT/ITeSsector,fortheFY2007-08,areestimatedto
beoverUSD40billion,agrowthof30percentoverthepreviousyear.
Although,exportshavebeenleadingthegrowthinthesector,onecanalso
observeasteadygrowthinthedomesticmarket.Thedomesticearningsofthe
sectorintheFY2007-08areestimatedtobeUSD12billion,agrowthof42
percentoverthepreviousyear.
TheUSandUKcontinuetoremainthelargestexportmarketswithsharesof61
and18percentrespectively.Lately,companieshavealsopenetratedintoother
geographiessuchasEMEA(i.e.Europe,MiddleEastandAfrica)andAsiaPacific
whichshowgreatpotentialintheyearstocome.
ConsideringthattheUSisadominantmarket,andakeycontributortothetotal
softwareexportsofIndia,therecessionarytrendsintheUScouldhaveanegative
impactonthesector.However,despitethis,NASSCOMisconfidentthatthecountrywillbeableachievetheUSD60billionexporttargetby2010.
Source:EconomicSurvey2007-08andNasscomdata
Exports from India (in USD billion )
4
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IT / ITeS marketsToday,technologyhasbecomeapre-requisiteforanybusiness,andthiscanbe
observedfromtherapidproliferationoftheservicesrenderedbythesector.The
Banking,FinancialServicesandInsurances(BFSI)arethelargestmarketsfor
IndianIT/ITeSexports,withashareof40.4percentinFY2006-07.Thenext
industryisthetechnology/telecomandmanufacturingindustrywhichaccounts
for19.1and15percentrespectivelyoftheIT/ITeSexportmarket.
Industry categorisationIndianentrepreneurscontinuetoleadtheITservicessector,havinga70percent
marketshare.Ontheotherhand,theBPOsectorisdominatedbyforeigncaptivesandforeignserviceproviderswhoholdashareofaround45percent.
Source:Nasscomdata
Markets for Indian IT/ ITeSexports in 2006-07
Market share of the providers in IT / Product development &Engineering segment ( 2006-07 ) USD 23 billion
Market share of the providers in the BPO segment (2006-07)USD 8.2 billion
Source:Nasscomdata
Source:Nasscomdata
5
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EmploymentThegrowthoftheIT/ITeSsectorhascontributedtremendouslytoboththe
economicandsocialdevelopmentofthecountry.AccordingtotheMinistryof
LabourandEmployment,ITservicesaccountsfor12percentofIndiastotal
employment,thusmakingitthelargestemployerintheorganisedprivatesector.
AsperNASSCOM-CRISILstudy,thedirectemploymentinthesectorisexpected
totouch2millioninFY2007-08,anincreaseof19percentoverthepreviousyear.
Theindirectemploymentgeneratedisalsoimpressive.Itisestimatedthatevery
jobinthesectorcreatesfouradditionaljobsthroughaninducedmultipliereffect.4
Mergers and AcquisitionsTheyear2007saw91dealsofprivateequityinvestmentsinthissector,byfarthe
maximumamongallthesectors.5
Thefollowingcontributetotheattentionthatthissectorisgarnering:
a) Strategicmovesbythecompaniesforinorganicgrowth
b) Risingglobaltechnologyspending
c) Positiveprospectsofthesectorintheyearstocome
d) Redrawingofboardroomstrategieswithrespecttocorefunctionsand
riskhedging.
4 Nasscom and CRISIL5 Nasscom data
Source:Nasscomdata
Direct Employment (in million )by the IT / ITeS Sector
6
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Life Cycle of the Indian IT / ITeS Sector Where It Stands TodayEveryindustryhasalifecycleandgoesthroughvariousphases.Likewise,theIT/
ITeSindustrystrajectoryhasalsobeenmappedintheattachedchart.
Theshiftfromtheintroductiontogrowthphasewasmarkedwiththeoff-shoring
oflowendandbackofficeservices.Inthegrowthphase,thesectorwitnessed
highgrowthratesofover30percent.Withagoodtrackrecordofdeliveryof
qualityservice,thequantityofoff-shored/outsourcedworkalsosawupward
movement.
Asthesectorhasmovedfromthegrowthphase,itisnowwitnessingincreasing
competitionfromothercountries.However,Indiastillcontinuestoenjoytheearly
moveradvantage,asaresultofwhichalargenumberofMNCsareoperatingin
India.
Thecontinuedprogresscanalsobewitnessedwiththeincubationofalarge
numberofKPOsandR&Dcentersinthecountry(thepremiseoftheseindustries
beingtalentarbitrage),thusmovingupthevaluechain.
Thesectoriscurrentlyinthetransitionmodefromthegrowthtothematurity
stage.Thefollowingcanbeidentifiedwiththetransitionphase:
Dropinthegrowthratesthegrowthrateshavegraduallyfallenfrom
the30plusmarktothehigher20s,whichisfurtherexpectedtofallto22-24percentinthecomingyears
Upwardmovementinthevaluechainthenatureofservicesrendered
hasalsomatured.
Although,itwouldbeachallengingtasktomaintainthepresentgrowthrates,the
aimseemstobeatgettingabiggershareintheuntappedmarketssoasto
increasetheshareofIndiancompanies.
7
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OutlookAtamacrolevel,theprospectsforthesectorappeartobepositive.Theglobal
technologyspendingfor2007isestimatedtobeUSD2,487billion(including
hardware),andisexpectedonlytoincrease.ThetotaladdressablemarketforFY
2007-08wasestimatedatUSD250billionand190billionforIT-Engineering
servicesandBPOservicesrespectively.6
Indiaholds60percentanda38percentshareintheaddressedglobalsourcing
marketsofIT-EngineeringandBPOservices,respectively.6 However,thereisstill
asignificantuntappedmarket(seeaccompanyingdiagrams),whichmeansthat
thereisenoughheadroomforfurtherexpansionofthemarket.
Theroadaheadmightnotbeallthatsmoothandthesectoriscurrentlyfacing
challengesonvariouscounts,whichemanatefromlocalaswellasglobal
economicandpoliticalfactors.Therecenttimeshaveshownaclear
interdependencebetweennations.TherecessionarytrendsintheUShavealready
startedhavinganadverseimpactonthesectorsgrowthrates.
Toanextenthowever,thesectorhashedgeditselfagainsttheUScrisisthrough
geographicexpansiontothenon-USmarketslikeEMEA(i.e.Europe,MiddleEast
andAfrica)andAsiaPacific.However,onecannotlosesightofthefactthattheUS
stillholdsalionsshareoftheIndianIT/ITeSexports.
Therealsoappearstobeasilverlininginthemiddleofthiscrisis.Thereisone
schoolofthoughtwhobelievesthatpressuresonmarginswouldinduce
companiestoexploremoreopportunitiesforcostcutting,therebyincreasing
opportunitiesfortheIndianIT/ITeScompanies.Wehaveseensometrendsinthe
currentyearlendingsupporttothisview.
6 Nasscom data
Source:Nasscomdata Source:Nasscomdata
8
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Income-tax policy on IT / ITeS Sector
The journey so farTheGovernmenthasplayedapivotalroleinactingasacatalysttotheIT/ITeS
sector.TheincentivesandSOPstothesectorhavehelpeditgrowtoitspresent
sizeandstature.
Themajormilestonesrelatingtotheincome-taxincentiveshavebeenidentified
below.
9
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Current income-tax environment for IT/ITeS companiesCurrently,unitsoperatingintheIT/ITeSsectorcanavailincome-taxdeduction
undersection10A/10BoftheIncometaxAct,1961(theAct).Thesubstanceof
boththesectionsremainsthesameandthesesectionsintendtoprovidea
deductionforprofitsgeneratedfromexportsofcomputersoftwareandIT/ITeS
services.
Whilesection10AisapplicableforunitsregisteredundertheSTPIscheme,
section10BappliestounitsestablishedasEoUs.
Section10Aand10Bhadasunsetclauseof31March,2009,whichmeantthat
thedeductionsunderthesesectionswouldnotbeavailablebeyond31March,
2009.Basedonconcernsbeingraisedbythesector,theFinanceMinister,vide
theFinanceAct,2008,hasextendedthedeductionsundersection10Aand10B
byanotheryear(i.e.till31March,2010).However,theFinanceMinisterhasnot
committedtoanyfurtherextensionoftheincome-taxholiday,andhasleftitopen.
Itwouldberelevanttonotethatinanycase,theprovisionsofMinimum
AlternativeTax(MAT)applytosuchcompanies,eveniftheyareeligibletoclaim
income-taxbenefitsundersection10A/10B.However,taxespaidunderMAT
(currently11.33percentofthebookprofits)canbeclaimedasacreditin
subsequentyears,subjecttospecifiedconditions.
Inthemeanwhile,theSpecialEconomicZonesAct,2005waspassed.
Accordingly,section10AAwasinsertedintheActin2006toprovideataxholiday
forunitsoperatingoutofanapprovedSpecialEconomicZone.
Thedeductionundersection10AAisavailableoveraperiodof15yearsinthe
followingmanner:
First five years deductionfor100percentofprofitsderivedfrom
exports
Next five years deductionfor50percentoftheprofitsderivedfrom
exports
Subsequent five years deductionof50percentoftheprofitsof
exports,subjecttoadditionalconditionsrelatingtore-investment.
MATprovisionsarealsonotapplicabletoanSEZunit,thoughitisnowbeing
debatedbytheEmpoweredCommitteewhethersuchanexemptionshould
continue.
TheSEZregime(section10AA)hasbeendubbedasasubstitutefortheSTPIand
EoUscheme(section10Aand10B).However,asdiscussedsubsequentlyinthe
report,owingtopracticalreasons,thismightnotbethecase.
Thereseemstobeagapbetweenthevisionofthelegislatureandtheneedsof
theindustry.Thereislackofclarityonthewayforward,beyond31March,2010,
especiallyforthesmallandmediumenterprises,whodonothavethefinancial
resourcesandfacevariouschallengestomovetoanSEZ.
10
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SEZ the Indian lapAfteritssuccessinChina,variouscountrieshavetriedtoadopttheSEZmodel.
AccordingtotheWorldBankReport,asof2007,therearemorethan3,000
projectstakingplaceintheSEZsin120countriesworldwide.
ThefollowingarethekeydifferencesbetweentheChineseandIndianSEZmodel.
Source:Wikipediaandotherpubliclyavailabledatabases
11
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Although,theSEZscheme(inIndia)islikelytohelpaugmentexportsanddevelop
thelessdevelopedregionsinthecountry,thepoliciesoftheschemearenotwell
suitedtotheIT/ITeSsector,whichdespitebeingexportorientedworkson
differentparametersascomparedtootherindustries.
Locational RestrictionsSEZsaretypicallylocatedoutside
citylimitsandimposelocational
restrictions.Thishasserious
implicationsonmanpowermobili-
tyandtransportationcosts.Also
beinganon-pollutingsectorwith
littlephysicalexports,itwouldbe
betterifitwerenotrestrictedto
aparticularlocation.
Regulatory constraintsThereareregulatoryconstraints
onmigrationofexistingopera-
tionstoanSEZ.Thistypically
makestheSEZsaviableproposi-
tiononlyforthelargercompa-
nies,whohavelargeandgrowing
operations.
Area of operationsTheSEZschemeismoresuited
forthelargeplayers.Theguide-
lineslaydownaminimumarea
requirementof10hectares
(approximately24.7acres)foran
IT/ITeSSEZ.Althoughthereisno
suchlimitforanSEZunit,getting
smallerareasonleasecouldbea
challenge.
12
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Challenges before the IT / ITeS Sector
Poor infrastructureAsperarecentsurveyconductedbytheWorldEconomicForum,inadequate
supplyofinfrastructureisthemostproblematicfactorsfordoingbusinessinIndia.
ItisstartlingtonotethatIndiasinternetbandwidthranks87thaspertheWorld
TechnologyReport.
Thesectorhasbeenconstantlydemandingbetterinfrastructure(connectivity,
housing,electricity,watersupply).TheinfrastructureoftheexistingTierIandTier
IIcitiesisinsufficienttomatchtheexponentialgrowthwitnessedinthesector
Bangalorecity,whichbooststobetheITcentreofIndiaisaclassicexample.
Availability of manpowerThesectoriscurrentlycaughtintheviciouscircleofconstraintsintermsofsupply
oftrainedmanpower,highattritionratesandeverincreasingsalarycosts.
Shortage in the supply of talent
Thesuccessofaservicesector,beingahumanintensivesector,highlydepends
uponthequalityoftheworkforce.TheIT/ITeSsectorhassofargallopedonthe
backoftalentwhichscoreshighonquality,innovationandpreciseness.ThisisoneofthedistinctadvantagesthatIndiahasoveritscompetitors.
Notwithstanding,therearegrowingconcernsaboutmismatchofthetalentpool,
especiallyatthemiddleandtopofthepyramid.Thecountryisfacedwiththe
largestshortagesinthemiddleofthepyramid.Thescenarioforthefuturedoes
notseemtobecomforting.AsperNASSCOM-McKinseyReport,2005,therecould
beashortfallof500,000graduatesby2010.
13
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High attrition rates
Thesectorfacesaseriouschallengeinattritionratesaswell.Owingtothegap
betweendemandandsupply,trainedresourcesareabletocommandhigherpay
packets,andfrequentswitchingofjobsinthesectorseemstohavebecomea
regularphenomena.
TheattritionratesarehigherattheBOPandMOPlevels,andthelargerportionof
theworkingpopulationliesintheseregions.
Rising wages
Increasingemploymentcostsposesoneofthebiggestthreatsasthisconstitutes
oneofthelargestproportionsofexpensesintheprofitandlossaccount.While
theaveragewageappreciationinthedevelopingworldisaround5percent,the
correspondingincreaseinIndiaismuchhigher.Ifthetrendcontinues,Indiawould
loseitscostadvantage,makingitlessattractivevis--visotheremerging
destinations.
Increasing operating costsInflationhoveringover11percent,wageappreciationaveragingat10-20percent,
combinedwithpoorinfrastructureandregulatorybottlenecks,arepurgingthecost
advantageIndiahasbeenoffering.Ontheotherhand,theotheremerging
locationsareprovidingSOPs,superiorinfrastructureandvariousotherbenefitsto
attractinvestmentsintheIT/ITeSsector.
Instability of currencySincethesectorpredominantlyreliesonexportmarkets,fluctuationinthevalue
ofIndianRupeevis--visothercurrencies(especiallyUSD)isleavingtheexporters
inatussle,andishavinganegativeimpactonthesector.
Pyramid Approach
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Competition from emerging destinationsIndiahasbeensuccessfulinattainingthestatusofthemostpreferredoutsourcingandoffshoringdestination.However,as
thesectormovesfromthegrowthtothematuritystage,thechallengesfacedbythesectorarealsoontherise.
GivenbelowisacomparisonoftheBrazil,Russia,IndiaandChina(BRIC)nationsbasedonthepolitical,economic,social
factorsandthecostsineachcountry.WhilethisreportgivesacomparisonoftheBRICnations,Indiacontinuestohave
competitionfromvariousothercountriessuchasVietnam,Philippines,MalaysiaandtheCentralandEasternEuropean
countriesthatareopeningdoorstotheoff-shoringandoutsourcingbusiness.Theemergingdestinationsarealsooffering
variousSOPs/incentives,lowcostleverageandofferingholisticdevelopmenttoattractforeigninvestment.
Source:EconomicIntelligenceUnit,KPMG-NasscomReportonEmergingDestinationsandotherpubliclyavailabledata.
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About the Survey
KPMGandCIIconductedthissurveywiththeprimaryobjectiveofprovidinga
balancedperspectiveofthesector,specificallyontheeconomicimplicationsof
theexpiryoftheincome-taxholiday.Theviewsarebasedonananalysisofthe
feedbackreceivedfromtherespondentsandonthebasisoftheinformation
collectedviasecondarydataanalysis.
Forthepurposeofthesurvey,aquestionnairecontaining25questionswassent
outtorespondentsfromtheIT/ITeSsectoracrossthecountry.
Therespondentstothesurveyrepresentamixofsmall,mediumandlargecompanies,operatingacrosssegmentslikeIT,ITeS,R&Detc.
Forthepurposeoftheanalysis,companieshavebeensegregatedonthe
followingbasis:
a) CompanieswithturnoverlessthanINR100croreshavebeen
categorisedassmallcompanies
b) CompanieswithturnoverbetweenINR100croresandINR1000crores
havebeencategorisedasmediumsizecompanies
c) CompanieswithturnovermorethanINR1000croreshavebeen
consideredaslargecompanies.
SmallandmediumcompanieshavebeenreferredtoasSMEsegment.
Profile of the respondents
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Analysis of the survey results
Pervasiveness of the STPI / EoU regimeTheresponsesshowthatasignificantportion(88percent)ofthecompaniesin
thesectorisavailingtheincome-taxholidayavailableundertheSTPI/EoU
regime.
Veryclearly,theincome-taxholidayundersection10A/10Bisrelevantforalarge
sectionofthesector,andthesunsetofthesesectionswouldhaveasevere
impactontheprofitability.
Biggest contributor to the success of the IT / ITeS SectorThesuccessstoryofthesectorcanbeattributedtovariousfactorssuchas
availabilityofarichtalentpool,availabilityofthetaxholiday,relativelylowercosts
andentrepreneurialskills.Throughthesurvey,wehavetriedtomapoutthe
relativecontributionofthesefactors.
Fortytwopercentoftherespondentsbelievethatthetalentpoolhasplayedthe
mostimportantroleintakingthesectorwhereitstandstoday.Thelowcost
leveragethecountryoffersrankssecond32percentoftherespondentshave
identifiedlowcostsasbeingthebiggestcontributortothesuccessofthesector.
Theincome-taxconcessionsavailedbythecompaniesisthethirdmostpreferred
choice,with23percentoftherespondentschoosingitisasthereasonforthe
successofthissectorandbeingchosenasthemostpreferreddestination.
ParticularsRegistered
under STPI /EoU scheme
Not registered withSTPI /EoU scheme
Companiesenjoyingincome-tax
benefitsunderSection10A/10B88 NotApplicable
Companiesnotenjoyingincome-
taxbenefitsunderSection10A/
10B
7 5
Percentage of respondents identifyingthe various factors as their first choice
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Biggest challenge for the IT / ITeS SectorTheyear2007wasmarkedwithnumerouschallengesfortheIT/ITeSsector.The
USslowdown(whichhashadanimpactontheglobaltechnologyspending),
fluctuationoftherupee,risingwagesandoperatingcosts,coupledwithtalent
supplyconstraints,havetestedtheresilienceofthesector.
Oneofthesectorsbiggestbugbearshasbeentheexpiryoftheincome-tax
holiday,whichwasproposedtoexpireon31March,2009.Aftermuchdebate,the
FinanceMinisterhasextendedtheschemebyanotheryear,anditwouldnowbe
expiringon31March,2010.Thishascomeasabreather,especiallytothesmall
andmediumcompaniesinthesector,whoconstantlyfacechallengesandfor
whomtheSEZregimedoesnotappeartobeapracticalsolution.
Thirtytwopercentoftherespondentsbelievethattheexpiryoftheincome-tax
holidayundersection10A/10Bisthebiggestchallengeforthesectortoday.
Twentyfivepercentoftherespondentshaveoptedforrisingcostsasthebiggest
challenge.
Itisinterestingtonotethatrespondentsrepresentingthelargercompanieshave
identifiedavailabilityoftrainedmanpowerasthebiggestchallenge.Clearly,it
wouldseemthatsincethesecompanieshavethefinancialstrengthtomovetoan
SEZlocation,expiryofthebenefitundersection10A/10Bseemstobeofa
lesserconcern.
Recruitments and compensation levelsThesectorhasbeeninstrumentalintheemergenceofanewmiddleclass
throughthecreationofenormousjobopportunities.Thesectorhasalsoutilised
thepotentialofIndiasvastpopulation.
Amajorityoftherespondentsbelievethatthewithdrawaloftheincome-tax
holidaywillburdentherecruitmentandcompensationlevels.Aslowdownonthe
recruitmentcouldhavealargereconomicimpactasthegrowthinthesectorhas,
inter alia,beenastimulusforthegrowingconsumerism(demand),increasing
thrustoninfrastructureanddrivingtherealestate,automotiveandconsumer
goodsindustry.
Percentage of respondents identifying
the various factors as the first choice
BiggestchallengetotheIT/ITeSSector
Sixtysixpercentoftherespondents
believethattheexpiryoftheincome-
taxholidaywillhaveanadverse
impactonrecruitments.Many
respondentsfromthelargecompa-
niessaidthattheindustrywouldgo
slowonrecruitments.
Ninetytwopercentoftherespon-
dentsareoftheviewthatthesector
wouldbeunabletomaintainthe
increasesinthecompensationlevels.
Allrespondentsfromthelargecom-
panieshavealsotakenthisview.
Majorityoftherespondentsrepre-
sentingR&Dcompanieshavealso
chosenthattheimpactwouldbefeltonboth,recruitmentsandthecom-
pensationlevels.
Sixtysevenpercentoftherespon-
dentsrepresentingMNCsalso
believethatthesectorwouldgoslowonrecruitmentsand90percent
alsoconsidersustainingcompensa-
tionlevelstobeagreaterchallenge.
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PricingThewithdrawaloftheincome-taxholidaywillforcecompaniestorevisittheir
pricingstrategies.Thisviewisalsosupportedby90percentoftherespondents.
Fiftypercentoftherespondentsrepresentingcaptiveserviceprovidersareofthe
viewthattheexpiryoftheincome-taxholidaywouldleadtoanoverallincreasein
thecostofdoingbusiness.Theaimofmostoutsourcingandoff-shoringisto
enjoythecostleveragethatajurisdictioncanoffer.Itisanobrainerthatwitha
potentialoverallincreaseinthecostofdoingbusinessinIndia,theIndia
attractivenessindexwouldmostlikelysuffer.
Most affected segmentSeventysevenpercentoftherespondentshaveevincedthatthesmalland
mediumcompanieswouldbemostaffectedwiththewithdrawaloftheincome-
taxholiday.
ThesuccessoftheSTPI/EoUschemeisnotsolelybasedontheincome-tax
incentivesprovidedtothesector,butalsotheeasewithwhichthecompanies
havebeenabletocarryonoperationsowingtominimumregulatoryandlocational
constraints.WhileSEZmaybeaneffectivemodeltostimulatethecountrys
exports,income-taxincentivesprovidedbythisschemearenottheonlyreason,
buttheeaseofoperatingalsoplaysanimportantrole.
Doingawaywiththetaxholidaycouldpotentiallywidenthecompetitivegap
betweentheSMEsandthelargercompaniesinthesector.Eightyninepercentof
therespondentsalsobelievethesame,andwhatisinterestingtonoteisthatthis
viewisalsosharedbyalltherespondentsfromthelargercompanies.
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India vs other emerging destinationsAlthoughIndiaistodayconsideredtoapreferreddestination,onlyaround250out
of500Fortunecompaniesareclientsofthesector.Thereisahugeuntapped
marketwhichisyettobeexplored.Otherjurisdictionshavealreadycomeupto
speedonmakingtheirpresencefeltinthisspace.Thesecountriesareoffering
variousincentivesforsettinguptheunitswithawelllaidinfrastructure.Alarge
numberofIT/ITeScompanies(bothIndianandforeign)arealreadyoperatingin
countrieslikeChina,Malaysia,Canada,BrazilandHungary.
OtheremergingdestinationssuchasVietnam,PhilippinesandBrazilarealso
makingtheircountriesviableforoff-shoringandoutsourcingofbusiness.Besides
offeringvariousincentives,othermeasuresarebeingtakentoimprovetheeducation,ITandsocialinfrastructureinthesecountries.
Eightytwopercentoftherespondentsareoftheopinionthatwithdrawal
oftheincome-taxholidaywouldresultinadditionalpressureonIndia.The
countrywillfinditdifficulttocompetewithotheremergingdestinations
likeVietnam,Philippines,RomaniaandEastEuropeancountries
EightyfourpercentoftherespondentsfromMNCsareoftheviewthat
Indiawouldloseitsedgeoverothercompetingdestinations
ConsideringthattheR&Dcompanieswouldfocusmoreontalent
arbitrageratherthancostarbitrage,onewouldhaveexpectedthatthe
responsesfromtheR&Dcompanieswouldbedifferent.However,a
significantportionoftheresponsesfromR&Dcompanieshasalso
followedthesametrend,andisoftheviewthatthewithdrawalofthe
income-taxholidaymayforcecompaniestolookatotherlocations.
Itseemsthatthewithdrawaloftheincome-taxholidayisdefinitelygoingtoadd
onemoreareaofconcernforthesector,andIndiamayfinditdifficulttoretainits
attractivenesswiththeMNCs.
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Is the SEZ an effective substitute to benefit all segments ofthe sector?ThesuccessoftheSTPImodelisclearlyvisiblewiththeincreaseinthenumber
ofregisteredSTPIunits.
TheSEZhasbeenenvisagedasaneffectivemodelthatwouldfurtherboostthe
exportsofthecountrywithgloballycompetitiveinfrastructureandbetter
utilizationofresources.However,manyareoftheviewthatthemodelsupports
onlythelargercompaniesinthesector.AspertheSurvey,73percentofthe
respondentshavesaidthatthemodelwillbenefitonlythelargercompanies.
Further,78percentoftherespondentsareoftheviewthattheSEZschemeisnot
aneffectivesubstituteforwithdrawaloftheSTPIScheme.
Althoughthelargerenterprisesarebettersuitedtoavailthebenefitsofferedby
thescheme,manyofthelargecompaniesalsoconsidertheSEZSchemetobean
ineffectivesubstitutetotheexistingSTPIregime.
Increase in the number of STPI units (operating units only)
Units as on March 2001 Units as on March 2007
2,895 6,321
Respondents view on the segments most benefitted with theSEZ policy
Source:STPIAnnualReport(2004-05)andAnnualReportonInformationTechnologybythe
MinistryofCommunicationsandInformationTechnology(2007-08)
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Will the SEZ result in full capacity addition?AninterestingissuerelatingtotheSEZschemeiswhetheritwouldresultina100
percentnewcapacitybuildup,ortherewillitaffectthecapacitiesalreadybuilt
underthenon-SEZschemes.Oneshouldbearinmindthatanymigrationofwork
fromtheexistingcapacitiestotheSEZsmayimpacttheutilityofexisting
capacities.
TheresponsefromtheSurveydoesnotseemtobeveryconvincingonthispoint.
Eightysevenpercentoftherespondentsbelievethatduetocommercialand
practicalreasons,therewillbediversionofbusinessfromtheexistingcapacities
totheSEZunits(significantorotherwise).Thismayrendertheexistingcapacities
redundant.
Biggest challenge relating to the SEZ schemeSEZrequireslargescaleoperationstoenjoyeconomiesofscale.Twentyseven
percentoftherespondentshaveselectedtherequirementrelatingtothescaleof
operationsasthebiggestdifficultywiththescheme.Anequalpercentofthe
respondentshavecitedregulatoryconstraintsasthebiggestchallenge.
Regulatory constraints and scale of operations are biggestchallenges of the SEZ policy
Percentageofrespondentsconsideringthevariousfactorsasthe
biggestchallengeundertheSEZregime
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What lies ahead Strategies to retain marginsWithincreasingcompetition,globalslowdown,risingwagesandcurrency
fluctuation,companiesarealreadyfindingitdifficulttoretaintheirexisting
margins.Therespondentswereaskedonwhatstrategiescompanieswouldlook
atformaintainingtheirmargins.
Alargechunkoftherespondentshaveindicatedthatcompanieswouldneedto
introspect,andworktowardsincreasingtheproductivityandre-engineering
processes.
Infact,companiestodayareworkingtowardsincreasingtheirutilisationratesand
haveresortedtocostoptimisation.
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Fiscal supportAwhopping97percentoftherespondentsbelievethattheincome-taxholiday
shouldbeextendedfurther.However,itwouldbeinterestingtonotethatonly34
percentrespondentsareoftheviewthatallsegments(intermsofsize)ofthe
sectorwouldneedfiscalsupport.Theother63percentoftherespondentsareof
theopinionthattheincome-taxholidayshouldbeextendedfortheSMEsegment
only.
Itisclearthattheresponseshavebeenbalancedinsofarastheyemphasizeon
theneedtosupportthesmallerandmediumcompaniestohelpthemgotothe
nextlevel.
Respondents view on extending the fiscal support for 5 and 10 years
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Conclusion
Theresultsofthesurveygiveagoodinsidersviewsonthe
matter.Therespondentsseemtobelievethatthesunset
clauseofthesection10A/10Bmayputthesectoronthe
backfoot,especiallywithreferencetosegmentswherethe
countryisincompetitionwithotherjurisdictions.Thereisa
consensusontheneedforcontinuingfiscalsupport,andan
extensionoftheincome-taxholidayundersection10A/10B.
Theresultsofthissurveyestablishbeyonddoubtwhythe
issueofexpiryoftheincome-taxholidayhasemergedasthesinglebiggestchallengeforthesector.
Someofthetakeawaysfromthesurveyare:
Indiasattractiveindexwouldbeadverselyimpacted
asthecostofdoingbusinesswouldincrease
Thepressurewouldbehigheronthesmalland
mediumcompanies,whoamongothers,maynot
beabletoeffectivelyleveragetheSEZscheme
Almosttwo-thirdsoftherespondentsbelievethat
theexpiryoftheincome-taxholidaywillhaveanadverseimpactonrecruitments
ThedemandforanextensionoftheSTPI/EoU
schemesisclearlyinfavorofassistingthesmall
andmediumcompanies.
Itisestimatedthattheannualadditionalincome-taxrevenue
totheGovernmentonaccountofexpiryofsections10A/
10BwouldrangebetweenINR15,000to20,000crores7.
TheGovernmentwilldefinitelyhavetoweighthisrevenue
sacrificevis--visthelargereconomicbenefits.Giventhe
sheerscaleofemploymentanddisposableincome
generated,anyslowdownoranegativeimpactonthesector
willalsohaveafarreachingeffectonaconsumerlead
economyfortheothersectors.
Thoughonemayclaimthatthesectorhasbeenseeing
exorbitantgrowthratesandiswellpositionedtofunction
evenwithoutataxholidaybenefit,theneedofthehouristo
ensurethatthesectorcontinuestogrowandcapturethe
untappedmarkets.Withgrowingcompetition,andincreasing
complexityinoperations,thecountryneedstoensurethatit
doesnotloseitscompetitiveedge.
7 Computed subject to assumptions and using/ extrapolating data of NASSCOM and other sources. It
has been assumed that the tax rate would be constant at 34 percent.
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Issue: DoyoubelievethattheIndianIT/ITeSindustryneedsfurtherfiscalsupportintheformofanextensionof
theincome-taxholidaybenefitsundersection10A/10Bof
theIncome-taxAct?
Comments: Yes.TheIndianITindustryhassubstantialoperationsbywayofon-sitedevelopmentofcomputer
softwareinrespectofwhichsubstantialcorporatetaxesare
incurredinforeigncountries.Further,socialsecuritycosts
areincurredinforeigncountriesforemployeesworkingon-
site,whichisasunkcostwithoutanybenefitaccruingtothe
employees.Intheabsenceofaneffectiveforeigntaxcredit
mechanismandTotalisationAgreements,thetaxcostfor
IndianITindustryisinherentlyhigh.Intheabsenceoffiscal
supportsuchassection10A/10B,theIndianITindustrywill
sufferanETRhigherthanotherindustries(whichis
estimatedtobearound20percent).
TheIndianIT&ITeSindustrygenerateshugeemployment
thatisdirectlyproportionaltothevolumeofbusiness.Fiscal
incentiveshelpinsustaininggrowthandtherefore
employment.Capitalintensiveindustriesgetfiscalincentive
bywayofdepreciationforbuildingcapacityandalsolower
thetaxcostsbyemployinganoptimaldebt:equitycapital
structure.InthecaseofITandITeS,owingtothenatureofbusiness,useofdebtsforoperationshaslimitedscope.The
capacityforIT/ITeSisbuiltthroughemploymentandthe
incentiveisbywayofsection10A/10B.
Whilethemaximummarginalrateforcompaniesis34
percent,theaverageeffectivetaxrateis20percent,which
meansthatallindustriesenjoytaxincentivesinoneformor
theother.Section10A/10BdeductionforIT/ITeSislogical
tomaintainparitywithotherindustriesconsideringthatit
pre-dominantlycompetesinglobalmarkets.
ThedividenddistributedbyCorporatesengagedinIT/ITeS
asaproportionofnetprofitsissignificant,whichmeansa
higherpay-outofdividenddistributiontax,whichisat17
percent.Thisrateoftaxationondividendsisalmostequalto
theETRofmostcorporatesat20percent.
Thus,whileSection10A/10Bisseenasanincentive,allthe
abovefactorsensurethattheaggregatetaxpaidbyIT/ITeS
isonparwithmostcompaniesandwithdrawalwouldmean
imposingahigherthanaveragetaxonIT/ITeScompanies.
Issue: Iftheanswertotheaboveisano,doyoubelievethattheSEZschemeisaneffectivesubstitutefortheSTPI/
EoUregime?
Comments: SEZbenefitsarenotspecifictoIT/ITeS.SEZasaconceptisintendedtopromotecapitalformation,
generateemploymentandpromoteexports.These
objectivesaresignificantlyadvancedbyIT/ITeSsector.
Issue: Whatimpactortrenddoyouexpecttoseeintheheadcountandcompensationlevelsofthesectorafterthe
expiryoftheincome-taxholiday?
Comments: Oncetaxincentivesarewithdrawn,businessesengagedinIT/ITeSwillgeneratelowerinternal
resources.Obviously,itwillbeanimpedimenttogrowth,
whichwillbefollowedbylowercompensationandalower
generationofemployment.Inrelativeterms,thequantumof
incomeinthehandsofemployeeswhichsufferstaxatthe
maximummarginalrateof34percentwilldecline,which
meansthatthetaxrevenuescollectedfromtheCorporates
engagedinIT/ITeSwillbemorethanoffsetbyalower
collectionfromtheemployeeswhoareengagedbythe
IndianIT/ITeSindustry.
Issue: Indiahasthusfar,beenapreferredoffshoredestination.Doyoubelievethatthiswillhaveanimpacton
theattractivenessindexofIndia?
Comments: TheattractivenessindexofIndiaforITeScoulddeclineastheskillsetsareusuallyfoundinother
destinations,whichmayattractinvestmentsthroughfiscal
incentives.IndianITservicesarecapableofmovingupthe
valuechainandhenceIndiawillcontinuetobeapreferred
destination.
Issue: Ifso,doyoubelievethatanyadditionalinvestmentinthissectorwouldgotootherlocationssuchasVietnam,
Romania,PhilippinesorEasternEurope?
Comments: ITeSinvestmentcouldgotothesedestinations.
Comments from some industry leaders
Mr. Suresh C Senapaty,Executive Director andChief Financial Officer,Wipro Limited.
8
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Issue: DoyoubelievethattheIndianIT/ITeSindustry
needsfurtherfiscalsupportintheformofanextensionoftheincome-taxholidaybenefitsundersection10A/10Bof
theIncome-taxAct?
Comments: Yes.Theindustryisfacingmultipleheadwindsandneedsadditionaltaxsupport.
Issue: Iftheanswertotheaboveisano,doyoubelievethattheSEZschemeisaneffectivesubstitutefor
theSTPI/EoUregime?
Comments: Ihaveansweredthepreviousquestionasyes.Inanycase,theSEZschemeisnotaneffective
replacementtotheSTPIscheme.
Issue: Whatimpactortrenddoyouexpecttoseeintheheadcountandcompensationlevelsofthesectorafterthe
expiryoftheincome-taxholiday?
Comments: Willleadtoaslowdowninrecruitmentandslowdownintheannualwageincreases.
Issue: Indiahassolongbeenapreferredoffshore
destination.Doyoubelievethatthiswillhaveanimpacton
theattractivenessindexofIndia?
Comments: Definitely.ITcompanieswillgrowtheirpresenceinothercountries.MNCswhoweresettingup
shopinIndiawillalsolookatothercountriestoinvestin.
Issue: Ifso,doyoubelievethatanyadditionalinvestmentinthissectorwouldgotootherlocationssuch
asVietnam,Romania,PhilippinesorEasternEurope?
Comments: Yes
Mr. Rostow Ravanan,
Chief Financial Officer,MindTree Limited.
Issue: DoyoubelievethattheIndianIT/ITeSindustry
needsfurtherfiscalsupportintheformofanextensionoftheincome-taxholidaybenefitsundersection10A/10Bofthe
Income-taxAct?
Comments: Yes
Issue: Whatimpactortrenddoyouexpecttoseeintheheadcountandcompensationlevelsofthesectorafterthe
expiryoftheincome-taxholiday?
Comments: Althoughthesectorwillcontinuetogrowbutthegrowthratemaynotbeatthesamepaceashasbeen
forlasttenyearsorso,henceitwillhaveconsequential
impactontheheadcountandcompensationgrowth.
Issue: Indiahassolongbeenapreferredoffshoredestination.Doyoubelievethatthiswillhaveanimpacton
theattractivenessindexofIndia?
Comments: TheattractivenessindexofIndiaisalreadyimpactedduetopoorinfrastructureandambiguoustaxlaws/
govt.policies.Removalofthistaxholidaywilldefinitelyhavea
furthernegativeimpact.
Issue: Ifso,doyoubelievethatanyadditionalinvestment
inthissectorwouldgotootherlocationssuchasVietnam,
Romania,PhilippinesorEasternEurope?
Comments: Yesthisprocesshasalreadystartedandescalatesasthesunsetontaxholidaycomes.
Mr. Alok C. Misra,
Group CFO,WNS Global Services.
27
8 Wipro Limited, MindTree Limited, and WNS Global Services are separate and distinct from KPMG
International and its member firms. The views and opinions are those of the authors and do not nec-
essarily represent the views and opinions of KPMG
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Data sources and references
EconomistIntelligenceUnitwebsite
Nasscom:StrategicReview2008
EmergingDestinationsforIndianIT/ITeSIndustryIndia:KPMG
NASSCOM
NASSCOMwebsite
STPIwebsite
SEZwebsite
IBEFwebsite
WorldEconomicForumwebsite
Wikipediawebsite
InformationTechnologyAnnualReport2007-08,Ministryof
Communications&InformationTechnology
OtherPubliclyavailabledata
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Glossary
BFSI: Banking,FinancialServicesandInsurance
BOP: BottomofPyramid
BPO: BusinessProcessOutsourcing
BRIC: Brazil,Russia,IndiaandChina
CRISIL: CreditRatingInformationServicesofIndiaLimited
CRM: CustomerRelationshipManagement
EHTP: ElectronicHardwareTechnologyPark
EIU: EconomistIntelligenceUnit
EoU: ExportOrientedUnits
EPZ: ExportProcessingZone
FICCI: FederationofIndianChambersofCommerceandIndustry
FY: FinancialYear
GDP: GrossDomesticProduct
IT: InformationTechnology
ITeS: InformationTechnologyEnabledServices
KPO: KnowledgeProcessingOutsourcing
MAT: MinimumAlternativeTax
M&A: MergersandAcquisitions
MOP: MiddleofPyramid
NASSCOM: NationalAssociationforSoftwareandServicesCompany
R&D: ResearchandDevelopment
SEZ: SpecialEconomicZone
SOPs: SoftOperatingPolicies
SME: SmallandMediumEnterprises
STPI: SoftwareTechnologyParksofIndia
TOP: TopofPyramid
USD: UnitedStatesDollar
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2008 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
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TheConfederationofIndianIndustry(CII)workstocreateandsustainan
environmentconducivetothegrowthofindustryinIndia,partneringindustryand
governmentalikethroughadvisoryandconsultativeprocesses.
CIIisanon-government,not-for-profit,industryledandindustrymanaged
organisation,playingaproactiveroleinIndiasdevelopmentprocess.Founded
over112yearsago,itisIndiaspremierbusinessassociation,withadirect
membershipofover7000organisationsfromtheprivateaswellaspublicsectors,
includingSMEsandMNCs,andanindirectmembershipofover90,000companiesfromaround362nationalandregionalsectoralassociations.
Afacilitator,CIIcatalyseschangebyworkingcloselywithgovernmentonpolicy
issues,enhancingefficiency,competitivenessandexpandingbusiness
opportunitiesforindustrythrougharangeofspecialisedservicesandglobal
linkages.Italsoprovidesaplatformforsectoralconsensusbuildingand
networking.Majoremphasisislaidonprojectingapositiveimageofbusiness,
assistingindustrytoidentifyandexecutecorporatecitizenshipprogrammes.
Partnershipswithover120NGOsacrossthecountrycarryforwardourinitiatives
inintegratedandinclusivedevelopment,whichincludehealth,education,
livelihood,diversitymanagement,skilldevelopmentandwater,tonameafew.
Complementingthisvision,CII'stheme"India@75:TheEmergingAgenda",
reflectsitsaspirationalroletofacilitatetheaccelerationinIndia'stransformation
intoaneconomicallyvital,technologicallyinnovative,sociallyandethicallyvibrant
globalleaderbyyear2022.
With64officesinIndia,8overseasinAustralia,Austria,China,France,Japan,
Singapore,UK,USAandinstitutionalpartnershipswith271counterpart
organisationsin100countries,CIIservesasareferencepointforIndianindustry
andtheinternationalbusinesscommunity.
About Confederation of Indian Industry (CII)
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KPMGistheglobalnetworkofprofessionalservicesfirmsofKPMGInternational.
Ourmemberfirmsprovideaudit,taxandadvisoryservicesthroughindustry
focused,talentedprofessionalswhodelivervalueforthebenefitoftheirclients
andcommunities.Withnearly123,000peopleworldwide,KPMGmemberfirms
provideservicesin145countries.
ThememberfirmsofKPMGInternationalinIndiawereestablishedinSeptember
1993.Asmembersofacohesivebusinessunit,theyrespondtoaclientservice
environmentbyleveragingtheresourcesofaglobalnetworkoffirms,providingdetailedknowledgeoflocallaws,regulations,marketsandcompetition.We
provideservicestoover2,000internationalandnationalclients,inIndia.KPMG
hasofficesinIndiainMumbai,Delhi,Bangalore,Chennai,Hyderabad,Kolkata
andPune.ThefirmsinIndiahaveaccesstomorethan2000Indianandexpatriate
professionals,manyofwhomareinternationallytrained.Westrivetoprovide
rapid,performance-based,industry-focusedandtechnology-enabledservices,
whichreflectasharedknowledgeofglobalandlocalindustriesandourexperience
oftheIndianbusinessenvironment.
About KPMG in India
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2008 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
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in.kpmg.com
KPMGinIndia
Mumbai
KPMG House, Kamala Mills Compound
448, Senapati Bapat Marg
Lower Parel
Mumbai 400 013
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000
Delhi
4B, DLF Corporate Park
DLF City, Phase III
Gurgaon 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101
Pune
703, Godrej Castlemaine
Bund Garden
Pune 411 001
Tel: +91 20 3058 5764/65
Fax: +91 20 3058 5775
Bangalore
Maruthi Info-Tech Centre
11-12/1, Inner Ring Road
Koramangala
Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999
Chennai
No.10 Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999
Hyderabad
8-2-618/2
Reliance Humsafar, 4th Floor
Road No.11, Banjara Hills
Hyderabad - 500 034
Tel: +91 40 6630 5000
Fax: +91 40 6630 5299
Kolkata
Park Plaza, Block F, Floor 6
71 Park Street
Kolkata 700 016
Tel: +91 33 2217 2858
Fax: +91 33 2217 2868
KPMGContact
Uday Ved
Head - Tax
Tel: +91 (22) 3983 5933e-Mail: [email protected]
Pradip Kanakia
Executive Director
Head - Markets
e-Mail: [email protected]
Tel: +91 80 3980 6100
CIIContact
Confederation of Indian IndustryNo.1086, 12th Main, HAL 2nd Stage
Indiranagar, Bangalore 560 008
Tel: 80-2527 6544 (8 lines)
Fax: 91-80-2527 6709
Website: www.cii.in