Budget disappoints IT, Aviation sectors

Malaysia Sun (ANI) Wednesday 28th February, 2007

Bangalore, Feb 28 : The imposition of fresh duty on companies of Information Technology and Aviation sector has dampened the mood and both the sectors expressed their disappointment over this year's Union Budget.

The export-oriented enterprises such as the thriving software outsourcing industry were brought back under the tax net in the proposal made by Union Finance Minster P Chidambaram for the Budget 2007-08 in the Lok Sabha today.

Chidambaram has proposed to extend minimum alternate tax (MAT) to firms claiming deductions under sections 10A and 10B of he Income Tax Act.

"Now, they must pay the minimum tax, still lower than a full-fledged corporate income tax, practically seeing an end to their tax holiday status conferred years ago." Chidambaram said.

Chidambaram, in his earlier tenure as finance minister a decade ago, introduced MAT as a way of taxing companies that weren't paying any tax by availing various concessions.

But a 10-year tax holiday had still kept the software industry from its coverage.

Vinay L. Deshpande, Chairman of Encore Software Limited in I.T. hub Bangalore said it was not fair to club smaller players with IT giants.

"For the IT (Information Technology) industry, while a lot of people have been requesting that the 10-year tax holiday be extended by another 10 years, there was no mention of that and instead, you rub salt into the wounds by saying now you will also have to pay tax by paying an MAT of 11.22 percent. That is disappointing. I am not saying the IT industry should not pay taxes, the larger players in the IT market can perhaps afford to pay taxes, the smaller players will need to stabilize and become stronger and for them, I think, it would have been very useful not to have that tax liability until they become stronger as well," said Deshpande.

Other players in the sector said the Government's proposal to bring employee stock options plan under fringe benefit tax was also "unfortunate".

Meanwhile, the levy of a three percent import duty on the aviation sector has not gone down too well with major players.

"As far as aviation is concerned, I don't find its still on the radar of the finance minister or the central govt. It somehow appears aviation has not deserved the attention it should deserve. It is still considered a peripheral activity. It is not treated as integral to the economic growth of the country and somehow there is a feeling it is still meant for the rich. If India has to be competitive globally, you need to get aviation integrated to the economy. The largest employer globally is tourism, both domestic and international. I don't think tourism in this country will take a leap unless aviation becomes affordable and profitable for the airlines," said G. R. Gopinath, managing director of Deccan Aviation Ltd, India's first low-cost airlines.

India's airlines, facing pressure from falling fares are also seeking lower taxes on jet fuel, which makes up nearly 30 percent of their operating cost.

They are allowed to hedge fuel for their international flights but not for domestic operations, forcing them to buy fuel from state-run firms who dominate the local market.