IT Companies Reconciling To Pay More Tax As STP Exemption Ends

Bangalore/Mumbai, July 23 IT firms such as TCS, Infosys and Wipro expect their effective tax rates to go up in the coming years as more of their delivery units come out of Software Technology Parks of India.

This would further impact the net profit of these companies, already under pressure because of the global economic crisis.

The actual taxes paid by a corporate divided by the net taxable income expressed as a percentage, gives the effective tax rates.

The vendors setting up delivery units in Software Technology Parks (STPs) enjoy a tax holiday for 10 consecutive years. However, after that period, they are no longer eligible for the exemption. The latest Budget gave the STPI scheme an extension of one more year; it will now end in March 2011. The extension will not benefit units that are more than 10 years old.

Infosys Technologies, which had an effective tax rate (ETR) of 17 per cent last fiscal, expects the ETR to touch 20 per cent this financial year.

“It is a natural conclusion that the ETR will go up in the next few years as more of our units come out of STPI,” said Mr V. Balakrishnan, Chief Financial Officer, Infosys.

The company estimates its ETR at 24-25 per cent in the next fiscal. “However, it is difficult to say because the tax rate would depend on how much of our growth will go into the SEZs,” Mr Balakrishnan added.

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