The government's proposed move to increase the excise duty on packaged software to 12 per cent from existing 8 per cent may affect IT usage in the country, the industry said.
"The higher excise duty on packaged software could lead to increased cost of IT and could slow down the IT usage in the domestic sector. This impacts in particular, small and medium enterprises who have just started deploying IT," IT industry body Nasscom said in its post-budget reaction.
Software giant Microsoft India chairman Ravi Venkatesan told PTI: "The increase in the excise duty on packaged software and IT software services becoming liable to services tax at 12 per cent will lead to an increase in the cost of software for IT users."
The IT industry is disappointed that its demand for extension of the Software Technology Parks of India (STPI) scheme beyond 2009 was ignored in the Union Budget.
Industry officials, however, kept a brave face, saying that they expect the issue to be dealt by the government post-budget or in the next budget. The STPI scheme that provides a 10-year Income Tax exemption in software technology parks expires, in March 2009.
"The STPI extension request was not addressed. We have one more budget to go. It could very well happen in post-budget announcements or in the next budget", Chief Financial Officer of Bangalore-based Wipro, Suresh Senapaty, told PTI.
The non-extension of tax holiday under STPI scheme in the Budget proposals for 2008-09 will badly affect employment generation in the IT sector, Infosys chief financial officer V Balakrishnan said.
In his reaction to the Union Budget, he told UNI that an extended tax holiday would have given some breathing space to the export-driven IT industry, which had been affected by the hardening of the Rupee, increasing costs and falling margins.
''This will have an impact on employment generation in IT industry. Smaller companies will be the worst hit as their margins will fall due to higher tax outgo. The bigger companies have managed the currency appreciation well during the last two years, but when the tax holiday ends in March 2009, it will impact the whole industry,'' he said.
Infosys is the second largest exporter of software services, with over $4 turnover. Its revenue from exports is nearly 98 per cent. When the industry comes under full tax regime, its tax outgo is expected to increase from the present 15 per cent to 22 per cent. It is expected to impact Infosys' margins by nearly three per cent.The industry had sought extension of tax holiday beyond March 2009.
Balakrishnan said Nasscom had predicted that impact on jobs due to non-extension of STPI scheme might result in loss of 400,000 jobs in three to four years.
The contribution of IT industry to the buoyant Indian economy did not deserve excise enhancement on packaged software and imposition of service tax on custom software, IDC India country manager Kapil Dev Singh said.
"Increase in duty on packaged software is a retrograde step, at a time when software companies are fighting piracy and increasing the footprint legitimately, this step could come in the way," Sun Microsystems India CFO Ravi Vishwanath said.
Infosys Technologies' CEO and MD Kris Gopalakrishnan said the budget has not been positive for the IT industry. "Smaller companies should have been given tax relief in this budget to counter the impact of a sharply appreciated rupee," he said. "The increase in excise duty for packaged software will lead to increased piracy."
IT hardware association MAIT welcomed the decision to maintain the current levels of custom duty and a 2 per cent reduction in the mean CENVAT rate (Excise duty/CVD) on all IT products to 14 per cent.
The sector has also welcomed the initiatives of setting up rural service centres and state data centres as these would help take the benefit of IT to the masses.
With the knowledge economy booming, outlay of Rs 15,000 crore (Rs 150 billion) for commissioning a world-class skill development programme on a mission mode will be a significant catalyst for all skill-dependent industries, Cognizant vice chairman Lakshmi Narayanan said.
"It could well be the model of the future for creating the right framework for skills development," Narayanan said. The industry was disappointed on the Finance Minister ignoring the long standing demand of the IT and ITeS industry to extend the STPI scheme.
"The STPI extension request was not addressed. We have one more budget to go. It could very well happen in post-budget announcements or in the next budget," Chief Financial Officer of Bangalore-based Wipro, Suresh Senapaty, said. The sops under STPI scheme are to expire after March 31 2009.
Additional Inputs: UNI