The National Association of Software and Services Companies (Nasscom) has asked the Government to reconsider a move by the CBDT that can adversely impact the functioning of IT firms at Special Economic Zones (SEZs).
The new rule has come as a shocker to the industry which considers SEZs as a cushion ever since it lost special category sops from the Government. “Employees of an undertaking cannot be classified under the category of plant and machinery,” the Nasscom has argued.
A recent circular of Central Board of Direct Taxes has clarified that human resources too will be included in the clause that restricts the things that IT firms can move to their SEZ units. Till now, IT firms can move 20 per cent of ‘plant and machinery’ from the existing business to those in SEZs. It is referred to as 20:80 ratio in the industry parlance.
“Ceiling a cap of 20 per cent on technical manpower (employees) would prove to be detrimental to the industry’s growth. Instruction No. 70 issued by Ministry of Commerce on November 9, 2010, explicitly allows movement of manpower, recognising business realities and clarifying the intent of the SEZ Act,” the Nasscom said, reacting to the CBDT circular.
Representatives of Nasscom have reportedly been called by the Government to discuss on Wednesday. The industry wants the Government to exempt human resources from this clause as they are very important in ensuring continuation of several projects.
“The 80:20 model applies to only plant and machinery as per the IT Act. The move will increase effective tax payments. A ‘50:50’ model will be ideal,” Milind Kulkarni, Chief Financial Officer of Tech Mahindra, said.
“We can buy new equipment, machinery but human resources are not something you can get afresh. We are hopeful of convincing the Government to at least allow for a 50:50,” a top executive of another IT firm told BusinessLine requesting anonymity.
Realising the potential damage the circular can do to the industry, the Nasscom submitted a memorandum to the Government, saying that it (clarification) would have a serious impact on the growth of the industry.
Nasscom Vice-President BVR Mohan Reddy has said that the domain knowledge of employees held the key in continuation of projects and also in handling the new ones.
(With inputs from Adith Charlie in Mumbai)