STPI vs. SEZ

The IT/ITES has been the golden sector of India for past decade or so. It almost certainly is this sector that has fuelled growth and most importantly the sentiment behind the India Story. Some say this could happen because of the incentives that were given by the government for the growth of this sector apart from the more obvious cost arbitrage story. Net-net however, these companies have not paid any tax at all if they were located in an STPI unit. And of course all them made sure they were! who wouldn't?!

And now that under the STPI scheme, 100 per cent tax deduction on profits under Section 10A and Section 10B of the Income-Tax Act are available only until March 31, 2009, the companies registered with the STPI will have to pay tax at an estimated rate of 33.99 per cent in the absence of these deductions.

Now whether or not the government will increase this scheme has been a debate going on for more than 2-3 years now. Mr. Chidambaram however, found this matter hardly noteworthy in the budget speech!

To make matters more interesting the SEZ policy does provide the tax holiday to the IT/ITES companies within their premises!! Under the SEZ Policy, units in SEZs will be 100% exempt from corporate income tax for the first five years; 50% exempt for the next five years and, for the final five years, 50% of the profits ploughed back will be exempt from tax. This in addition to a plethora of other duty benefits. Oh, and no company can 'shift' into the SEZ. It has to have a 'different' business.

And this has created a lot of uncertainity in the market! And following are two stories published on consecutive day by reputed publications show how unsure the market sentiment is on this issue:

Infotech slowdown bites real estate hard

17 Mar 2008, 0001 hrs IST,T Surendar,TNN

MUMBAI: Real estate firms are beginning to feel the heat of the slowdown in IT/ITeS sectors. Leading IT companies are saying that lease of office space to software and BPO firms have fallen by over 30%. The trend is particularly bound to affect firms like DLF and Unitech which are building several software SEZs (special economic zones) across the country.

IT cos’ demand for SEZ space rising, post-Budget
Non-extension of software technology park benefits

Moumita Bakshi Chatterjee
New Delhi, March 16 2008

Real estate developers are seeing a sharp rise in enquiries from IT and BPO companies making a beeline for space in Special Economic Zones (SEZs), barely a fortnight after the Budget ducked the crucial issue of extension of the Software Technology Park of India (STPI) scheme.

I officially love confusion, uncertainity, inefficiencies in information 'cos this is when most opportunities tend to present themselves!!!!!!!