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Soft blow for software

Mar 2, 2000

The Finance Minister has clarified that software firms in export promotion zones (EPZs) and software technology parks (STPs) will continue to enjoy tax exemptions and wont be affected by the changes in the budget. This nullifies to a large extent the impact that the phasing out of the export exemptions over the period of five years would have on the profits of software companies. It in fact provides an entry barrier to the existing software firms who are already situated in the EPZs and STPs since the new companies or for that matter the expansions after April 2001 would fall under the tax net.

The second fact, which will further safeguard the bottomlines of the software companies is the fact that these companies pay tax via their foreign branches anyway. For instance, most of the top rung software companies have their branches in the USA and tax is paid by them on the income from the branch.

In the past since the companies were tax exempt they could not claim tax credit for such foreign taxes. Now this will be possible.

All in all the removal of sops on exports or the imposition of the Minimum Alternate Tax is hardly going to impact the bottomlines of the existing software companies at least for the next year.

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