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Wednesday
Feb 28 2001
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0909 hrs IST
2239 EST
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Withdrawal of 80 HHE makes no impact on IT
Rishi Chopra
EVEN though the tax liability of software companies has been slowly rising on account of the rapid rise in their revenues, the impact of a withdrawal of the Section 80HHE -— the Section which exempted export profits from taxes in last year's Budget has not had a significant impact.
This can be seen from the tax provisions made by many of the IT firms for the last two quarters. The reason can be partially attributed to many IT firms enjoying a ten-year tax holiday for their units, which are mostly located in export oriented unit, export processing zone and software technology park units. Units located in these are exempt from corporate tax under Section 10A/10B, which remain in force till 2009-10.
The finance minister had announced that 20 per cent of export profits would be subject to tax during the current fiscal. Since the corporate tax is 39.55 per cent, tax payable by the formally tax exempt companies is just under 8 per cent (39.55 per cent of 20 per cent) in the current fiscal. This would go up to 40 per cent in fiscal 2001-02 and would be eventually phased out by 2005-06.
However this phase out does not apply to units located in STP/EOU/EPZ, which continue to be tax exempt till 2009-10. A detailed analysis of more than 200 listed IT firms for the year ending March 2000, and a few with the year ending June 2000, shows that there was a tax outgo to the tune of around Rs 240 crore in fiscal 1999-00.
In financial year 2000-01, the current financial year, the same firms have made a provisions of Rs 85 crore for the September quarter and Rs 98 crore for the December quarter.
Although this is a 100 per cent jump over the December 99 quarter figures of Rs 51 crore, it cannot be termed significant taking into account the increase in the revenues. Hence the withdrawal of 80 HHE does not appear to have hit profits of Indian software companies.
Most of these taxes are on account of provision for overseas taxes for the income which is attributable to onsite operations carried out in other countries.
Part of the provision is also for income in India while some is on account of the dividend tax. In the year 1999-00, the highest tax of Rs 50 crore was paid by Wipro (which includes tax paid for all its divisions) followed by Infosys with Rs 40 crore and Pentamedia with Rs 16 crore.
In the December 00 quarter too, Wipro leads with a tax provision of Rs 28 crore followed by Infosys with Rs 19.5 crore.
Some of the biggest jumps seen are by Satyam,which had paid a tax of just Rs 6 crore for the year end March 2000, has already made a provision of Rs 16.7 crore in the last two quarters. Similarly, Mascot Systems which paid a tax of Rs 1.8 crore in 2000 has made a provision of Rs 5.36 crore in the last two quarters.
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