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DOUBLE TROUBLE FOR IMPORTED TECH SERVICES

Software royalty raised to a kings ransom

Import of software and technology services will become more expensive.And litigation around these areas is likely to increase.

The Budget has raised the rate of tax on payments by way of royalty and fees for imported technical services from 10% to 25%.This will apply to services imported from countries with which India does not have a double taxation avoidance agreement (DTAA).The finance minister said the rates provided in a number of these agreements were higher than 10%,and this anomaly needed to be corrected.

India has DTAAs with over 80 countries,yet a lot of imported technical services are billed from non-DTAA countries and are currently taxed at 10%.Everybody uses software for which licence fees have to be paid;many import leased equipment for which lease charges apply.So this tax increase will raise costs, Kaushik Mukerjee,executive director in accountancy firm PricewaterhouseCoopers,said.

IT industry body Nasscoms president Som Mittal said he had hoped the Budget would resolve the issue of software royalty with retrospective effect.On the contrary,this tax increase will create a lot of confusion among people who import software from countries that are not part of DTAA and they will end up paying more for their purchase under multiple taxes.I expect this will lead to more litigation, Mittal said.

The domestic electronics manufacturing industry is a big beneficiary of the Budget.The government last year announced a National Electronics Policy as part of a move to reduce Indias massive dependence on imports for its electronics needs.The Budget now takes it further.The finance minister said semiconductor wafer fabrication facilities may get incentives,including zero customs duty for plant and machinery.A single fabrication facility requires at least $2 billion in investment,and these incentives should make these investments viable.Currently countries like Taiwan and China dominate the space.

Times of India, New Delhi, 01-03-2013