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February 28, 2001                                       Feedback  

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M&A in infotech sector to get boost

BS Bureau

Mergers and acquisitions are going to be easier for the Indian infotech companies.

The Union finance minister Yashwant Sinha on Wednesday - in the Budget 2001-02 - proposed changes in the section 10A\10B of the Income Tax Act, so that IT companies operating in special zones can avail income tax exemption even after the changes in the company's shareholding pattern.

Currently, as per the provisions of the section 10A/10B of the Income Tax Act, if during the year more that 51 per cent of shareholding pattern of a company changes, then the company will cease to get income tax exemption from that year.

The move is expected to result in a new merger and acquisition spree in India.

"This move will be beneficial for the IT industry, which strategically depends on acquisitions and mergers for achieving higher levels of growth. We anticipate mergers and acquisitions in large numbers," Nasscom president Dewang Mehta said.

Another important proposal being viewed as a positive move for the infotech industry is to provide tax holiday to the Internet service providers (ISPs) and broadband network service providers. "The move will be beneficial for the consumers as the ISPs are not subjected to any additional cost. We expect an increase in the number of consumers," said Pramod Khera, acting CEO, Aptech Ltd.

Data Access India Ltd, managing director, Sidhartha Ray defined the tax holiday for the ISPs as a positive move.

Export earnings from onsite services of software companies has also been given income tax exemption. "IT sector continues to do well and should be encouraged to do better, I therefore, propose that profits delivered by the units located in the software technology parks from the export of onsite services will be eligible for deduction like their other export incomes. Units located outside these zones will also get the benefit of such export earnings" Sinha said.

"Onsite revenues of the companies contribute over 60 per cent of the revenue. This will give a major boost to the Indian IT companies," said Dewang Mehta.

The announcement by the minister to allow Indian companies to invest abroad up to $50 million annually through automatic route without being subjected to the three year profitability condition, is expected to make it easier for the companies to take quick decision on overseas investments. "This has been a long stranding demand of the IT industry. This will make it easier for the companies to take quick decisions in investing abroad," the Nasscom president said.

Besides, the proposal by the finance minister to allow 100 per cent ADR and GDR proceeds for investments up from the current ceiling of 50 per cent, will also prove to be beneficial for the IT companies.

It is going to be easier for the Indian IT firms to acquire companies abroad. The government also proposed that companies which have issued ADRs/GDRs may acquire shares of foreign companies up to $100 million or an amount equivalent to ten times of their exports in a year, whichever is higher.

However, the minister has brought online information and data-base retrieval services and technical consulting service under the net of service tax.

Source: Business Standard

The Budget 2001-2002 Special
The Rediff-Business Standard Budget Special

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