Karnik: Showing the way

Calcutta, Feb. 20: The National Association for Software and Services Companies (Nasscom) has asked the government to amend the information technology (IT) act to ensure that foreign companies outsourcing work to ITeS or BPO units in India will be exempt from tax.

?The government should not tax the parent company which outsources work to an unit in India,? Nasscom president Kiran Karnik said. ?The IT act must be amended to identify ITeS and BPO units as handling outsourced work, so that parent company shall not be liable to pay tax in India. Therefore, they will not be required to file tax returns here.?

Nasscom is also of the opinion that the arm?s length price for outsourced activities should be determined only on the basis of activities performed by the Indian BPO unit without attributing any profits to the parent company.

The apex body has also recommended that the government give a thrust to the growth of small and medium enterprises (SME) in the IT industry.

?While a large company can avail of tax benefits, smaller companies do not get the same benefit when they acquire a sub-contract job and have to pay taxes,? said Karnik. ?The government should extend tax benefits to all concerned and help create a vibrant ecosystem on the lines of the automobile industry,? he added.

The government should also invest in e-governance projects, which will also give a boost to the SME segment. Projects like land records, smart cards, data digitisation, small-scale software development can be sub-contracted to the SMEs.

Nasscom has suggested 100 per cent tax exemption for these projects and allocation of special funds to meet global standards. Banks must also announce special schemes for lending at reduced interest rates to meet working capital needs.

Karnik said to encourage venture capitalists to invest in Indian companies, the government should insure risk coverage by means of refund of at least one-third of the invested amount in case of failure of the project or loss.

?To boost growth of educational institutions catering to export markets, the government must provide support in terms of operational flexibility, tax incentives and related infrastructure issues,? added Karnik. He also urged the government to increase expenditure in e-governance projects to boost growth.