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Budget sops draw cheers from ICE sector

BS ICE bureau

The Union Finance Minister Yashwant Sinha on Wednesday gave a slew of sops to the ICE sector which includes exemption of on-site services revenue of software companies from the income tax cover and extension of tax holiday enjoyed by the telecom sector by another two years till March 31, 2003.

He also proposed bringing Internet service providers and broadband network service providers tax holiday till 2003.

The finance minister has also proposed changes to the section 10A/10B of the Income Tax Act in the Union Budget 2001, so that IT companies operating in special zones can avail income tax exemption even after there are changes in the company's shareholding pattern.

Currently, as per the provisions of the section 10A/10B, if during a year more than 51 per cent of the shareholders in a 100 per cent export-oriented unit operating in export promotion zones and software technology parks changes then the company will cease to get income tax exemption from that year.

"We anticipate mergers and acquisitions to happen in India. One must remember that this is a key strategy of IT companies to grow at a rapid rate," said Dewang Mehta, president, NASSCOM.

The government also proposed to bring down the import duty on IT and telecom products to 15 per cent and brought down the import duty on IT components to nil.

"This move by the government is beneficial to the hardware industry. In addition to this, we expect the move to increase the IT spending at government level to push up the computer hardware sales in the country, which is currently showing signs of slowing down," said Vinnie Mehta, director, MAIT.

The finance minister has, however, imposed tax on the profits of the domestic sales of companies located in export promotion zones, free trade zones and software technology parks. He has also proposed bringing broadcasting, technical consulting, telegraph, on-line information and data base under the service tax net.

The finance minister has also proposed that the domestic companies can now invest up to $50 million abroad annually through automatic route without being subjected to the three-year profitability condition. This is one of the long lasting demands of the domestic IT companies.

Besides, the proposal by the finance minister to allow 100 per cent of the American depositary receipts (ADRs) and global depositary receipts (GDRs) proceeds for investment, up from the current ceiling of 50 per cent, will prove beneficial for the IT companies.

The government has also proposed that companies that have issued ADRs/GDRs may acquire shares of foreign companies worth up to $100 million or an amount equivalent to ten times of their exports in a year, whichever is higher.

The government has also made a proposal to tax the foreign broadcasting companies operating in India.

The finance minister has also said that the overall tele-density in the country is expected to reach 3.5 per hundred by March 2001, which is almost double the tele-density two years ago.

Announcing this while presenting the budget, the finance minister said there are about 800,000 STD/ISD/local booths operating around the country bringing telephone services within reach of almost all consumers besides generating considerable employment.

He said the government proposes to introduce the Convergence Bill to cover telecommunications, information technology and information and broadcasting sectors in an integrated manner.

Source: Business Standard

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