Effectively, for the $30-billion IT/BPO industry, the tax holiday has ended two years before time. All software firms will now have to pay a Minimum Alternative Tax (MAT) of 11.33% on income for which deduction is claimed under this section.
Small and fledgling IT companies will be the worst hit by the MAT. Companies like Aricent, Infrasoft, Birlasoft and Mindtree Consulting will bear the brunt of this move. Large companies are insulated to an extent because some of them already pay taxes in other geographies and their domestic operations like for example, TCS.
Introduced for the first time in 1996-97 to bring zero tax companies under the tax net, it will now cover IT companies registered under the Software Technology Parks of India (STPI) scheme, export-oriented units, manufacturing and other companies housed in free trade zones and export processing zones. MAT will have an impact to the tune of 1.5% to 2% on the bottomlines of these companies. Companies housed in STPI, free trade zones, export processing zones, electronic hardware technology parks enjoyed this benefit which was previously available till 2009-10. Under Section 10 B, tax breaks are available to companies located in EOUs. Earlier, they could claim full deduction on their export profits till 2010.
“It was agreed that there won’t be any tax till 2009 under Section 10/B. The government is going back on its commitment. Many companies base their investment decisions on the commitments that are given, this sends a wrong signal,” said Ashank Desai, co-founder, Mastek, and a member of Nasscom. “Now there will be an impact of 1.5% to 2% on the bottomline,” said Manoranjan Mohapatra, President & COO of $300 million, Aricent, the erstwhile Flextronics.
Small and fledgling IT companies will be the worst hit by the MAT. Companies like Aricent, Infrasoft, Birlasoft and Mindtree Consulting will bear the brunt of this move. Large companies are insulated to an extent because some of them already pay taxes in other geographies and their domestic operations like for example, TCS.
Introduced for the first time in 1996-97 to bring zero tax companies under the tax net, it will now cover IT companies registered under the Software Technology Parks of India (STPI) scheme, export-oriented units, manufacturing and other companies housed in free trade zones and export processing zones. MAT will have an impact to the tune of 1.5% to 2% on the bottomlines of these companies. Companies housed in STPI, free trade zones, export processing zones, electronic hardware technology parks enjoyed this benefit which was previously available till 2009-10. Under Section 10 B, tax breaks are available to companies located in EOUs. Earlier, they could claim full deduction on their export profits till 2010.
“It was agreed that there won’t be any tax till 2009 under Section 10/B. The government is going back on its commitment. Many companies base their investment decisions on the commitments that are given, this sends a wrong signal,” said Ashank Desai, co-founder, Mastek, and a member of Nasscom. “Now there will be an impact of 1.5% to 2% on the bottomline,” said Manoranjan Mohapatra, President & COO of $300 million, Aricent, the erstwhile Flextronics.
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