Budget should look at tax rules,special funding provisions to boost IT sector

The Indian IT industry usually doesn't get affected much by the annual Budgets pronounced by the government. Given the export orientation and paltry share of revenue contribution from Indian territory, this is not surprising. However, things are slowly changing as Indian enterprises start to spend more on information technology. According to a report by global IT firm IBM, Indian enterprises spend close to 17 per cent of their IT budget on the Cloud, and by 2023 almost half of the Cloud budget will be on hybrid, which is a combination of on-premise, private and public Cloud. This shows rapid Cloud adoption by domestic enterprises in the coming years, which is likely to be accelerated on the back of the Covid pandemic.

Similarly, the virus outbreak has transformed the ecosystem with businesses adopting digitisation in order to reach out to their end customers. From digital payment platforms to online grocery stores, small retail outlets, online pharmacies, vegetable and fruit vendors, recharges, edtech and medtech players; all have embraced digitisation amid the Covid pandemic. This, in turn, has pushed up IT spending, which augurs well for the domestic IT industry. In this perspective, any fiscal stimulus to rev up the economy in the upcoming Budget will definitely push IT spending further.

Further, last year's Budget gave some definitive push to digital technologies such as artificial intelligence (AI), machine learning (ML), internet of things (IoT) and big data. The Budget has laid a widespread digitisation plan as fibre-to-home aims to link over 100,000 gram panchayats through BharatNet. The government had allocated Rs 6,000 crore for this initiative. Similarly, the previous Budget also allocated Rs 8,000 crore to set up the National Mission on quantum computing and technology. So, the seeds for widespread growth of digital technologies have already been sown. Of course, many of these initiatives were disrupted amid the ongoing pandemic. However, a resolute execution of the plan this year can give a solid start to these ambitious goals.

Apart from fiscal stimulus and carving out special funds for specific initiatives, this year's Budget can provide clarity on the tax provisions related to the IT & ITeS sectors. Currently, there is a dispute on the definition of "intermediary" services. While there is no GST levied on goods or services exported, intermediary services are taxed even if supplied to foreign entities. Industry fears this could cascade into denial of refunds on taxes paid on inputs, audits, and investigation and tax recovery notices for tax. Therefore, the upcoming Budget can provide clarity on the definition, bringing in much-needed clarity for the IT industry.