Are Budgets important for their proposed tax rates or the direction of their spending programme? DTC and GST will pave the way for a long-standing tax structure, and therefore our focus needs to move to the spending programme.
Presenting the Union Budget 2011, the Finance Minister has painted a rosy picture, with a promised growth of 9 per cent. He showed his reformist credentials by announcing the introduction of the key Bills, such as DTC, Companies Bill and Constitutional Amendment Bill for GST, in this session of Parliament. He conveyed his anxiety on the high inflation rate and promised that it will come down, as a result of a few measures as well as prayers to the Almighty.
TAX DISAPPOINTMENT
For an Indian multinational, the reduction in tax to 15 per cent on dividends received from its overseas subsidiaries is welcome step. We would otherwise have paid 33 per cent tax on these dividends. Therefore, it would act as an incentive to declare dividends and bring the money to India. The Indian software industry has been characterised as non-tax paying -- a benefit it has, however, enjoyed for its immense contribution to the nation. However, we are now a taxpaying industry as well! We had asked for further extension to Section 10A, exempting profits from eligible units in Software Technology Parks. Given that this benefit had been extended for two years already, this was more in the nature of hope. We did not get it.
The dampener has been the retention of MAT at around 19.3 per cent (including surcharge). This is too high a rate for a minimum alternate tax. To add to the injury, FM has included SEZ units for MAT calculation.
INFRASTRUCTURE NEEDS
IT industry cries for better urban infrastructure, more funding on higher education and an ecosystem to encourage innovation and entrepreneurship. The FM has talked about higher funding for infrastructure projects and provided incentives for attracting foreign investments for this sector. Education has received his attention.
We will judge the contribution of this Budget on the basis of the improvement it makes to our cities, and on the steps it has taken to make qualified people available to this knowledge industry. The Government appreciates the power of IT to improve governance. The slew of measures announced by Mr Pranab Mukherjee would hopefully fuel domestic IT demand. The course had been set and it is good to know that we are coasting along. Sticking to the right direction is important -- but we cannot realise our potential without accelerating. Hopefully, we will get a reformist Budget next year.
(The author is Executive Director & CFO, Tata Consultancy Services.)