New Delhi: Software industry body Nasscom has said the government's decision to set up a panel to look into tax-related issues will help allay concerns of the IT sector.
Prime Minister Manmohan Singh on Monday set up a committee to look into taxation matters of the IT sector and research and development activities, to provide clarity on such issues.
"We believe this announcement would allay concerns of industry, global corporations and investors...I would like to thank the PM for his proactive support in creating this committee that will help to address current issues being faced by the sector as well as focus on implementing the Safe Harbour provision," Nasscom President Som Mittal said in a statement.
The panel has been set up to address issues like approach to taxation of Development Centres, tax treatment of 'onsite services' of domestic software firms and those related to finalising Safe Harbour provisions announced in Budget 2010.
Safe Harbour principles are international disclosure practices to check litigations in transfer pricing -- an accounting mechanism undertaken by MNCs to reduce tax liabilities.
Saying that India is a major destination for global sourcing of technology and BPO, Mittal stressed on the need for a consistent policy regime that is important for the industry to continuously grow and innovate.
"Multinational development centers have played a key role in building the industry, create best practices and demonstrate the overall value proposition of India," he said.
An announcement by the Prime Minister demonstrates the focus and commitment that the Government of India continues to provide for enabling the growth of the IT-BPO industry in the country, Mittal added.
The panel, headed by former Central Board of Direct Taxes (CBDT) chairman N Rangachary, will be in addition to the one set up to review the General Anti-Avoidance Rules (GAAR) provisions to address the concerns of foreign investors.
The new four-member committee will hold consultations with stakeholders and related government departments to finalise the approach to taxation of Development Centres and suggest appropriate measures.
The panel will finalise the approach to taxation of Development Centres and the IT Sector by August 31, 2012 and will suggest clarifications and changes that may be needed to remove ambiguity.
Since India does not have monopoly on Development Centres, a statement from the Prime Minister's Office said, "this is a highly competitive field with other countries wanting to grab a share of the pie. There is need for clarity on their taxation".
Many multi-national firms carry out activities such as product development, analytical work and software development, through captive entities in India, it said.
They operate in a wide range of fields including software, IT hardware, Pharmaceutical R&D, automobile/scientific R&D, it said, adding that these are popularly called Development Centres.
Over 750 MNCs have such centres at over 1,100 locations in India.
Nasscom has been closely working with the Ministry of Finance, Directorate of International Taxation and CBDT on specific issues related to transfer pricing and onsite services.
First Published: Monday, July 30, 2012, 18:09