The Infosys managing director Nandan Nilekani has said that its time for the infotech industry to pay its dues. This has been reported by a leading financial daily.
Although this has been opposed by the industry body Nasscom, the fact remains that a tax on software exports would not only bring in revenue for the government but also possibly stop the use of hawala transactions being undertaken in the guise of software exports. Or at least bring them under the tax net!
Despite claims of high taxation on corporate India, the fact is that Indian companies are among the lowest income tax payers in the world. Although there are many companies who pay around 35% tax, the average rate of tax that most of the Top 200 companies in India pay is around 20%.
In the USA, the average rate of tax is around 25–30% and in South–East Asia it is around 30%.
The opposite view is that since software exports are expected to touch $ 87 bn by 2007, the encouragement to the sector by way of tax benefits should continue since the growth in the foreign exchange reserves more than makes up for the loss of tax revenue.
A via media would be to bring the software companies under the tax net by imposing a tax initially of around of 5%–10% and gradually doing away with the tax benefit within (say) three years.
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