Budget 2013, IT BPO sector s expectations

The $100 billion IT-BPO sector is struggling with increasing costs and global uncertainty. Given its exponential growth as well as potential and bearing in mind the significant contribution of 7.5% of India's GDP, it is imperative that the government duly considers and makes announcements which helps in future growth of the IT/BPO sector and equips it to deal better in tough global economic conditions, says PricewaterhouseCoopers ( PwC) in a release.

Below are IT/BPO sector budget expectations from PwC: 

Transfer pricing
Although one applauds the advent of Advance Pricing Mechanisms in India, however it would be helpful if there is some certainty around the marks ups being proposed for IT-ITeS companies. In lieu of the sector enlarging in emerging areas like KPO, R&D, Cloud etc. certainty through safe harbour formulation will aid the sector in creating a stable environment in adherence to the arm's length criteria. Also, Domestic Transfer Pricing provisions should not be applied to tax neutral transactions which merely add to the administrative compliance. 

Indirect taxes
Non-issuance of service tax refunds continue to pose the biggest challenge for the sector. Additionally, the issuance of the recent Notification mandating collection of demands despite pendency of appeals and stay petitions adds to the blockage of funds and unwarranted court action. It would also help if final clarity on treatment of domestic delivery of software which is considered as goods and is subject to VAT as well as Service Tax could be brought up. 

SEZs
Removal of the minimal contiguous land requirement of 25 acres for SEZ eligibility. Also the withdrawal of the levy of MAT which casts a huge burden on SEZ units who have otherwise been promised tax holiday is a clear need in keeping with policy and intent of the Government as spelt out when the same was introduced. 

Software taxation
Retroactive amendments coupled with conflicting jurisprudence on the subject mandates a need for rationalisation of treatment of software as "Royalty" which is subject to tax in India. Roll back of taxation of the same is clearly the ask of the industry as the non-compliance implications are dual - one in the form of interest levy and penal consequences and the other in the form of disallowance of the same as expenditure whilst computing the taxable income of the payer. The retrospective amendment exposes companies to punitive action for non-deduction of withholding taxes for the past period, which should be condoned.