IT companies criticize Indian Budget

Federal Minister for Finance P Chidambaram’s budgetary proposal to extend Fringe Benefit Tax (FBT) to Employees Stock Option Plan (ESOP) and introduction of Minimum Alternate Tax (MAT) to the Information Technology sector has been roundly criticized by IT bellwethers Infosys Technologies and Wipro.

The IT companies are upset that Chidambaram has paid no need to the validity of the tax holiday till 2009 and went ahead to levy MAT on all IT firms, which have to pay around 11.22 per cent of the adjusted book profits.

“The introduction of MAT in a situation in which the Government is committed to provide tax holiday till 2009 is retrograde step and not in consistence with the principles of good governance”, said Wipro’s Chief Financial Officer Suresh Senapathy.

The other proposal agitating the IT industry is the Budgetary proposal to bring ESOP under the Fringe Benefit Tax net. ESOPs, which are perquisites provided by the company in the form of shares to retain their loyalties, had been the buzzword in the IT industry.

“Many employees, who had been granted stock options, have not exercised it until now. Now, the employees will be taxed if they exercise the options. It is not right”, Director of Human Resources in Infosys Mohandas Pai said.

Pai, who sounded worried about the larger impact on the move to tax ESOP, said the move discourages professionals from becoming entrepreneurs. “The ESOPs are one way of creating capital. Bringing it under the tax net would hit the economy”, he said.

Experts in the IT industry point out that ESOPs have made millionaires, the most famous being a driver in Infosys.