indian information technology services sector and the domestic user industry – an uneasy...
DESCRIPTION
India has grown to be a powerhouse in providing Information Technology (IT)Services to myriad clients all over the world. This sector has shown that it has what it takes to move beyond pure cost arbitrage and up the value chain. Despite the successes of this sector and its prowess in providing world-class solutions, there is empirical evidence which suggests that the domestic user industry remains woefully underservedfor its IT requirements. This study theorises that this is due to the tax-break based incentives provided to the Information Technology Service providers, which have resulted in an environment where servicing the domestic IT users, especially the Micro and Small Scale Enterprises, becomes non-remunerative. Therefore, domestic industry's use of Information Technology happens without any government aid or ncentive. On the contrary, current government policies result in a number of missed opportunities, rendering Indian businesses uncompetitive. In this paper, we analyse the impact of export oriented tax incentives on the domestic sector and attempt to identify a few policy mechanisms that could obviate their negative effect.TRANSCRIPT
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian Information Technology Sector andthe Domestic User Industry:
An Uneasy Partnership?
Sachin Garg1 Rashmi Sarita2 Lokesh V.3
1Navankur
2FICCI
3Larsen & Toubro
21st November, 2009
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Introduction
Issue: Indian Companies in the Information TechnologyServices Sector do not play much in the DomesticSector
Impact: Domestic IT user companies are unable to tap theexpertise the IT Service companies possess,making them uncompetitive in the long run
Contribution: We hypothesize that Tax Incentives to ExportOriented Software Units play a big role in makingthe domestic IT user community unattractive tothe IT Services Companies.
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - Phases
Time
Val
ue
Ad
dit
ion
Body Shopping
Onsite
Offshore
Projects
Consulting
IP Focused Development
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT-BPO Industry
NASSCOM data (2009)
• Indian IT-BPO industry FY2009 estimated revenues:USD 71.7 bn
• IT software and services industry: USD 60 bn
• Employment: Direct: 2.23mn, Indirect 8mn
• 1.2% of GDP (FY1998) – 5.8% of GDP (FY2009)
• Share of Total Exports: < 4% (1998) – ≈ 16% (2008)
http://www.nasscom.org/Nasscom/templates/NormalPage.aspx?id=55816
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Exports
NASSCOM data (2009)
• Revenues are estimated to gross USD 47.3 bn in FY2009,accounting for 66% of the total IT-BPO industry revenues.
• US is the largest market with 60% share.
• European market driving incremental growth—UK (CAGR41.4%), Continental Europe (CAGR 51.4%)(FY2004-FY2008)
• Banking, Financial Services and Insurance segment (BFSI)remains the biggest sector with over 41% of total revenues
http://www.nasscom.org/Nasscom/templates/NormalPage.aspx?id=55816
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Outline
1 Introduction
2 Indian IT Services SectorEvolution of the SectorMarket SizeStrengths, Weaknesses, Opportunities & Threats
3 Domestic IT Users
4 Tax Incentives to the IT Sector
5 Net Foreign Exchange Earner vs. Non-NFE
6 Future Work
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
Weaknesses
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
H Global vendors playing in
the domestic market
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
H Global vendors playing in
the domestic market
H Leapfrog opportunities. These
require strategic direction and
long-term thinking
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
H Global vendors playing in
the domestic market
H Leapfrog opportunities. These
require strategic direction and
long-term thinking
H Bottom of Pyramid Innovation
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
Threats
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
H Global vendors playing in
the domestic market
H Leapfrog opportunities. These
require strategic direction and
long-term thinking
H Bottom of Pyramid Innovation
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
Threats
H Rising factor costs resulting in
lowering advantages on the
cost-arbitrage alone
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
H Global vendors playing in
the domestic market
H Leapfrog opportunities. These
require strategic direction and
long-term thinking
H Bottom of Pyramid Innovation
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Indian IT Sector - SWOT Analysis
Strengths
H Mature Industry — sub-
stantially high on the Value
Chain
H Strong and Vibrant domestic IT
market
Threats
H Rising factor costs resulting in
lowering advantages on the
cost-arbitrage alone
H Emerging Competition:
LatAm, East Europe, China
WeaknessesH Productivity is not keeping
the desired pace
H Skewed structure — small
number of large firms
H Manpower supply constraints
Opportunities
H Global vendors playing in
the domestic market
H Leapfrog opportunities. These
require strategic direction and
long-term thinking
H Bottom of Pyramid Innovation
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Domestic Market Potential
NASSCOM data (2009)
• Presents a significant opportunity as IT spending in India isgrowing at a pace faster than any other country in the AsiaPacific region.
• Domestic IT-BPO revenues expected to grow ≈ 20% toreach INR 1,113 bn (> INR 1 lakh crores) in FY2009
• Hardware spend (the largest segment) growth moderated
• Domestic IT services are expected to grow by 20% inFY2009, driven by
• increased acceptance of IT as a growth enabler, and• a competitive tool for Indian corporations looking to
compete in an increasingly globalised environment.
• 35 mn strong SMB segment expected to drive future growth
http://www.nasscom.org/Nasscom/templates/NormalPage.aspx?id=55816
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Domestic Market – Harsh Reality“IT firms looking for more domestic share”Mint, (11th May, 2009)http://www.livemint.com/2009/05/10235219/IT-firms-looking-for-more-dome.html
Figure: Focusing on India(Source: http://www.livemint.com/2009/05/10235219/
74126915-36CA-4A6F-9C56-41AA8A26A9F1ArtVPF.pdf)
Next: Tax Incentives to the IT Sector
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
“IT firms looking for more domestic share”Mint, (11th May, 2009)http://www.livemint.com/2009/05/10235219/IT-firms-looking-for-more-dome.html
Figure: Focusing on India(Source: http://www.livemint.com/2009/05/10235219/
74126915-36CA-4A6F-9C56-41AA8A26A9F1ArtVPF.pdf)
Next: Tax Incentives to the IT Sector
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
“IT firms looking for more domestic share”Mint, (11th May, 2009)http://www.livemint.com/2009/05/10235219/IT-firms-looking-for-more-dome.html
Figure: Focusing on India(Source: http://www.livemint.com/2009/05/10235219/
74126915-36CA-4A6F-9C56-41AA8A26A9F1ArtVPF.pdf)
Next: Tax Incentives to the IT Sector
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
“IT firms looking for more domestic share”Mint, (11th May, 2009)http://www.livemint.com/2009/05/10235219/IT-firms-looking-for-more-dome.html
Figure: Focusing on India(Source: http://www.livemint.com/2009/05/10235219/
74126915-36CA-4A6F-9C56-41AA8A26A9F1ArtVPF.pdf)
Next: Tax Incentives to the IT Sector
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
“IT firms looking for more domestic share”Mint, (11th May, 2009)http://www.livemint.com/2009/05/10235219/IT-firms-looking-for-more-dome.html
Figure: Focusing on India(Source: http://www.livemint.com/2009/05/10235219/
74126915-36CA-4A6F-9C56-41AA8A26A9F1ArtVPF.pdf)
Next: Tax Incentives to the IT Sector
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Tax Incentives to the IT Sector
Software Technology parks of India (STPI) is a scheme for NetForeign Exchange Earners (NFEs). Some of the tax exemptionsavailable under this scheme are:
• 100% Income Tax Holiday as per section 10A of the IT Act.
• 100% Customs duty exemption on imports
• 100% Excise Duty Exemptions
• Non-payment of Service Tax
• Non-payment of Value Added Tax
• Central Sales Tax reimbursement on indigenous purchases.
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example –Assumptions
Example of an NFE and NNFE who wish to do similardevelopment.
Assumption NFE NNFEClient Foreign DomesticTeam Size 20 20Billing Rate USD 3,500 USD 3,500Overheads USD 100 USD 100Bulge Mix (years ofexperience)
1(7+), 2(5+), 6(3+),7(1+), 4(0+)
1(7+), 2(5+), 6(3+),7(1+), 4(0+)
Customs/ExciseDuties
0% ≈ 8%
VAT 0% 4%Corporate IncomeTax
0% ≈ 30%
Service Tax 0% ≈ 10%
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example –Income/Expenditure
Assumptions
Entity Number Rate (USD) Total (USD)Computers 20 500 10,000Employees 20 1,000 20,000Billing Rate 20 3,500 70,000Overheads 20 100 2,000
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – Returns
Gross Margin = Billing − (Employee Cost +Overheads)
Cost NFE NNFECapitalEquipment USD 10,000 USD 11,200 (Cus-
toms + VAT)Gross Mar-gin USD 48,000 USD 48,000
Margin afterService Tax USD 48,000 USD 41,000
Net Mar-gin afterIncome Tax
USD 48,000 USD 28,700
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
NFE vs. NNFE Example – ReturnsComparison
NNFE Returns are
∆Returns = ReturnsNNFE −ReturnsNFE
ReturnsNFE×100
≈
−40%
of NFE returns for similar work and client profiles.
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Future Work
This hypothesis based on empirical evidence and authors’experiences would need to be substantiated by more primaryand secondary data. Some of this data could be:
• Revenues generated by the IT services companies in thedomestic market
• Comparison of• Employee salaries, experience levels and profiles between• Billing Rates between• Taxes paid on incomes earned in
the export and domestic markets
• Customer profiles — how many and of what profile foreignSMBs do the IT services companies serve versus domestisSMBs
IndianInformationTechnology
Sector and theDomestic User
Industry:An Uneasy
Partnership?
Sachin,Rashmi,Lokesh
Introduction
Indian ITServices Sector
Evolution of the Sector
Market Size
SWOT Analysis
Domestic ITUsers
Tax Incentivesto the IT Sector
Net ForeignExchangeEarner vs.Non-NFE
Future Work
Thank You
Questions?
Also see the blog post:“Indian Domestic IT—inspite of the government”
http://sachingarg.org/blog/2009/04/indian-domestic-it-inspite-of-the-government/