Budget 2020: IT firms want 15% corporate tax for services companies in SEZs

Rationalisation of goods and services tax (GST), 15 per cent corporate tax rate for services companies in special economic zones (SEZs), and relaxation for start-ups from some existing tax rates were some of the demands of information technology (IT) firms and start-ups at a pre-Budget discussion with the Finance Ministry on Monday.

IT and business process management (IT-BPM) industry body, the National Association of Software and Services Companies (Nasscom), said the 15 per cent corporate tax, currently applicable to new manufacturing companies in SEZs, should be extended to new services firms. 

“This will achieve the outcome of all new manufacturing and services companies in SEZ availing a 15 per cent tax rate. This measure will have a very limited fiscal impact but will provide impetus to companies to invest,” Nasscom said in its submission to the government.  The meeting on Monday, chaired by Finance Minister Nirmala Sitharaman, included representatives from industry bodies, Apple, Reliance Jio, Paytm, and Uber to invite feedback on “Digital Economy, Fintech and Start-ups”. The discussion lasted for over two hours. 

The sunset clause for SEZ nearing — March 31, 2020 — and the IT industry has been a big beneficiary of the policy. A government-appointed committee made the case for continuing with SEZ earlier. Nasscom reiterated that “steps are needed to ensure SEZ continues to attract investment and contributes to exports and employment generation. Hence, there is a compelling case to extend the existing tax holidays for another five years”.

The industry body has also asked the government to defer tax liability on grant of Employee Stock Option Plans (ESOP) in start-ups to the time of sale of the shares, instead of when the employee exercises the stock options. 

Nasscom asked for creation of a deep tech investment fund of Rs 3,000 crore for deep tech start-ups over the next five years.  It also suggested that the taxation regime for the digital economy be eased, including extending tax credit under the equalisation levy to foreign companies in the home country, and ease reporting and compliance requirements under the place of effective management concept. 

Rajat Tandon, president of Indian Private Equity and Venture Capital Association (IVCA), who was present at the meeting, asked for zero rating of services provided to alternative investment funds.

IVCA said the extent of foreign investor contribution with the amendment under goods and services tax law should notify any supplies made to AIF as “deemed export”.

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