Software body Nasscom has urged the government to withdraw the Minimum Alternative Tax (MAT) on
SEZ units and provide clarity in transfer pricing norms to help create a conducive environment for the growth of over $70 billion Indian IT-BPO sector.
In its Budget submission to the Finance Ministry, Nasscom has recommended that MAT on SEZ income be withdrawn as it is counter to the long-term policy announced by the government through the SEZ Act.
"MAT should be withdrawn at least in respect of SEZs which have already been notified so that economic viability of these SEZs is protected. Moreover, MAT rate should be brought to one-third of the corporate tax rates i.e., to 10 per cent (international norms to be applied)," it said.
This, Nasscom said, would help in creating a conducive policy environment to sustain and grow the IT-BPO sector in India.
The MAT was increased to 18.5 per cent last year. This impacted the Indian IT firms, especially smaller players, as they were moving to SEZs after the exemptions under the Software Technology Parks of Indian scheme came to an end.
Nasscom said policy changes like replacing the exemption in March 2011 with refund mechanism for input services and the imposition of MAT from Assessment Year 2012 has diluted the incentive and created deterrent for future growth of SEZs.
On the issue of transfer pricing, Nasscom has recommended a three-pronged approach.
"Firstly, for past and current claims, 'Safe Harbour' provisions be used to resolve all outstanding cases. Second, introduce Advance Pricing Agreements (APA) to help set fair and transparent pricing of transactions and provide certainty to firms in the future.
"Thirdly, review the structure and procedures of the Dispute Resolution Panel to ensure that the mechanism is effective in achieving its mandated purpose," it said.
This will help expeditiously clear the backlog and provide certainty in the future for transfer pricing issues, Nasscom said.
Transfer pricing deals with the technique where parent companies sell goods and services to subsidiary entities at an inflated price to deliberately reduce profits and tax liability.
The law requires that goods and services should be sold to subsidiary companies at arm's length price -- the price at which goods are traded between unconnected companies.
Taxing these units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.
Source : profit.ndtv.com