"The present momentum should enable us to reach the target of $60 billion of exports in 2010. The software export industry will be able to meet the indicated export revenue of $31.6 billion this fiscal.
"But in the long run, with such discouraging policies, we expect a fall in growth rates and bottomlines, since the small and medium players in particular will be seriously impacted by these changes," Kiran Karnik , president, Nasscom told PTI.
The sector is reeling under the Budget hammering of a Minimum Alternate Tax and there are no indications that the tax holiday will be extended beyond 2009.
Indian software and services (IT-BPO) exports will clock a growth of 32.6 per cent to exceed $31 billion this fiscal, a Nasscom review had said earlier.
Karnik said the industry was hopeful of an extension of the STPI scheme (Software Technology Parks of India) for 10 years beyond 2009.
However, the absence of a decision on this, and the added tax liability in the form of MAT, would increase the relative attractiveness of other countries - which are offering many incentives - as locations for the IT software and ITES-BPO industry.
Karnik said in the long run, this will negatively impact not only the growth of the Indian software industry but also other industries such as transportation, construction, retail and aviation whose growth is fuelled by the IT boom.
"We will urge the government to reconsider its proposal to extend MAT on export incomes exempt under Sections 10A and 10B, and extend the STPI scheme," he said.
The industry body said MAT is a regressive step that indicates withdrawal of the government's commitment to provide tax incentives till 2009. This will hit all companies which have made their business plans and investment decisions on the basis of a "tax-holiday" till 2009.
Indian IT-BPO sector is expected to end the fiscal with a 10-fold growth in revenues over the past decade from $4.8 billion in 1997-98 to $47.8 billion this fiscal, according to the Nasscom Strategic Review 2007.
Karnik also said Nasscom would oppose Fringe Benefit tax on Employee Stock Options. Nasscom also fears property for IT companies and talent for IT/BPO companies are going to be expensive.
"Higher costs for leased space will adversely affect SMEs and companies which do not own office space, and this will reduce the competitiveness of India.
Besides, with ESOPs being taxed under FBT, companies will face immense pressure to retain skilled manpower. This may force some companies to look at other alternate destinations such as eastern Europe, China and South East Asia to set up offshore development centres, he said.