STPI SCHEME AND TAX HOLIDAYS: THE TWO ARE NOT SYNONYMOUS
When the finance minister
announced a one-year extension of the Software Technology Parks of India (STPI)
scheme - virtually passing the ultimate decision to his successor - what the IT
industry reacted to was “finance minister’s decision to extend the tax holidays
by one more year.” Not surprisingly, that was the headline of most media
reports.Tax exemption - that is all that the large IT services export firms see
in the STPI scheme. And that is exactly what the finance minister is after. He
is not convinced why these large firms - some of which make margins in the
thirties, and are world leaders in their areas - need this exemption from the
government. The combined tax contributions by these firms will be significant
and as the person responsible for maximising tax revenues, he sees no harm in
asking them to pay taxes. So, even when he announced a year’s extension, he
made it very clear that he does not believe in exemptions, but rationalisation
of tax rates - a statement targeted at those looking for some tax concession or
the other. Unfortunately, in this tug-of-war between the babus who believe that
the IT industry should be taxed and the bigwigs of IT industry, the STPI scheme,
which is the central point of debate, has taken a backseat. The debate has
completely shifted to tax concessions. That is unfortunate, to say the least.
STPI was not started with that objective. When initiated, STPI scheme was aimed
at accelerating