Indian budget gives potential boost to IT industry earnings

(By Anthony Miller – Tuesday 7th July 2009 10:15am). The Indian IT industry got a welcome – though not entirely unexpected – gift in yesterday’s budget when the government extended the STPI (Software Technology Parks of India) tax export incentive a second time, to FY10-11 (i.e. to 31st March 2011). The scheme, which was originally meant to end in FY09, in effect zero-rates taxes on ‘software exports’ (including IT and BPO services) from designated facilities. Had the concession ended, tax rates for the IT majors would have headed towards the mid-20% mark from the mid-teens where they are today. The government also removed some other tax anomalies, including Fringe Benefit Tax, though most players were passing this onto employees anyway (some benefit, eh?).

In any event, STPI was becoming less of an issue as the effect of the successor SEZ (Special Economic Zone) tax incentives kicked in for new facilities, and for those players with growing domestic sales. Indeed, if I recall correctly, a year or two ago one industry leader (I think it was Infosys' Murthy) made himself exceedingly unpopular with peers when he reckoned the sector was mature enough to stand on its own several feet without the need for tax safety-nets. Anyway, it’s good news for the players, most of whose shares are up a few percent this morning.