Indian IT and BPO industry gets a shot in the arm as Govt. extends STPI tax holiday scheme

• IBTimes RSS
• Print
• E-Mail
• digg
• Del.icio.us

Finance Minister P. Chidambaram said that the tax holiday scheme for Software Technology Parks of India (STPI) which was set to expire on March 2009 has now been extended to March 2010 to encourage further growth in the $64 billion-IT sector.

The announcement has brought temporary relief to IT firms which have for long urged the Indian government to extend the benefits given to Special Economic Zones (SEZ) to small-scale companies and BPOs through an extension of the STPI scheme "which would help move business to Tier-2 and Tier-3 cities."

Earlier, Som Mittal, president of the National Association of Software and Services Companies (NASSCOM), the consortium that serves as the apex body of the Indian IT software and BPO industry, said absence of any mention in the Union Budget 2008-09 on the extension of the STPI scheme would hit the industry hard.

"This (extension of tax holiday for STPIs) is extremely critical for small enterprises and the BPO industry, as well as for expansion in tier-2 and tier-3 cities as they are unable to avail the benefits of the SEZ (Special Economic Zone) scheme. The STPI benefits are available till March 31, 2009 and we are hopeful that through continued dialogue we will be able to convince the Government to consider our proposal and help India garner the large opportunity in this sector," Mittal had said.

The government's silence on this matter had resulted in a "drop in the number of IT companies registering with us for the last couple of quarters," said Bharat Bhusan, STPI's director general. "Both foreign and Indian IT firms have put their plans to expand under the STPI scheme."

However, many IT firms feel that one-year extension is not enough.

"It is not enough to extend it by just one year, it should have been extended for another 10 years," said Vishnu Dusad, CEO, Nucleus Software Exports.

Poor supply of resources, steep appreciation of the rupee against the dollar, rising inflation, hike in wages and other costs, and economic slowdown in the US had hit the sector hard rendering the profit margins of many IT firms "too low," Dusad said.

A longer extension of the scheme would have encouraged IT firms with turnovers less than Rs.5000 crore ($1.25 billion), he added.

• 1
• 2
• 3