Incentivise research, innovation

To make sure India transforms into a digital economy and embraces innovation, it is important that the government announces the R&D incentives for the IT & Engineering Industry as well during this budget.

By Author  |  Published: 24th Jan 2017  11:11 amUpdated: 24th Jan 2017  3:08 pm
If the Centre addresses tax concerns and creates the needed infrastructure, India can become a digital hub.

While India has been able to incentivise the manufacturing related R&D in India as being innovation, this has not been done in the IT sector so far. To make sure India transforms into a digital economy and embraces innovation, it is important that the government announces the R&D incentives for the IT & Engineering Industry as well during this budget. This has been already done in many countries like UK and Ireland. States such as Telangana which are focusing on innovation can derive benefit and the same with the industry.

BVR Mohan Reddy, founder and executive chairman, Cyient and former chairman, Nasscom, said, “This budget becomes even more important as the nation is going through a big initiative of demonetisation which has impacts in various size and forms. In a country like India, where 86 per cent of the transactions happens in cash, this is a bold step by the government to push the economy to a digital highway.”

Boost digital infrastructure
He adds, there is a need of robust infrastructure creation to enable a smooth digital economy. The upcoming union budget should announce a more easier framework and guidelines to own the card payment machines or the POS terminals by the SMEs. Right now many intermediaries and financial institutions levy transaction charges, like at petrol pumps. Such charges have to be removed to make sure people are not penalised for using digital mode of transactions. The union budget should announce relief on such transaction charges and should a step forward and incentivise the usage of digital payments through discounts and tax waivers.

There have been concerns around the unusually high safe harbor margins (ranging between 20 per cent- 30 per cent) and this has to be revised to a lower rate which is more realistic based on the APA (Advance Pricing Agreement) data. Safe Harbor margins are high in transfer pricing and have not been adopted by the IT companies from India, Reddy said.

IT experts point out, the software product development industry has been largely dominated by small and medium enterprises (SMEs) which has been suffering with the 10 per cent TDS levied on all software transactions, which has cascading effect. The upcoming budget should address this issue to make sure government provides the required boost to the software product SMEs.

Reflecting the same belief, Anant Maheshwari, president, Microsoft India, said, digital technologies will have a long-term impact in all the key sectors that are looking to transform – manufacturing, retail, education, health and even in agriculture. “India has a tremendous opportunity to push the boundaries of technology usage to leap frog to the fourth industrial revolution where data defines processes, products and interactions. Therein lies the opportunity for, what I call, Make Digital in India. It is about taking world’s best technologies and creating solutions that work for India and other markets like India. With this budget, I expect a continued focus on Digital India that will help us Make Digital in India.

Data centres
Sridhar Pinnapureddy, CMD, CtrlS Datacenters expressed that the budget should focus on rationalisation of corporate tax, GST roll-out and quick service tax refunds. Lower power tariff is the need of the hour as electricity is a major datacentre expense. Tax concessions (if any) for data centre industry as data centres are the core enablers of Digital India – be it cloud, social media, IoT etc. Special tax incentives and sops for MSMEs in IT sectors will be a welcome step. Industry expects budgets for infrastructure development to create a congenial environment for FDI in Telangana.

Smart cities
Highlighting on the need to create more smart cities, NiranjanChintam, Executive Chairman, Kellton Tech Solutions stated, there will be extra attention given to digital and smart city initiatives in the Budget in order to speed-up the execution. Telangana should receive approval for more number of smart cities which will help build better infrastructure and provider greater investment opportunities. Would expect to see a cut in the corporate tax rates to encourage organisations to be tax compliant and help make new investments.”

Paynear CEO Priti Shah says, “We have witnessed merchants being incentivised post demonetisation that has led to the growth in digital transactions but by incentivising the last mile customer this could be reached better and faster. As a payment processing provider we expect that merchants and the end customer should have some benefits while transacting digitally. All digital transactions should be tax exempted to a limit. As soon as digital transaction is not taxable, people would have no second thoughts of being a part of the eco system thus marching India towards a less cashless society.”

Tax reforms
In this budget, building on the anti-corruption theme, we expect to see rollout of direct tax reforms to provide stronger disincentives for black economy, land registration reforms, greater push towards digitisations, new programmes for economic inclusion and make in India, says Sanjay Sethi, CEO and co-founder, ShopClues.

Saying e-commerce sector continues to grow at scorching pace thereby contributing to government’s ambitious plans around “Make in India” & employment generation, Neelesh Talathi, views that the government should leverage Budget to provide further impetus to this sector through tax reforms and enhanced level playing field. GST is the cornerstone to releasing the dream of one-country one-market, as it can potentially resolve impediments in inter-state movement and unburden e-commerce from multitude of taxes (such as entry tax).

Girish Rowjee, CEO Greytip Software, said, the industry is expecting that the rate of taxes on domestic software and IT services are brought down as this will help lower costs and lead to increased adoption. “We expect the government to take special steps to augment or help develop specific skills which will now be needed as a large segment of population is moving online.”