IT majors, including Infosys and mid-sized players like Mindtree, and tax experts have termed the latest circular from the Central Board of Direct Taxes (CBDT) on special economic zones (SEZs) as a measure which would only increase their bureaucratic burden leading to many irksome issues.
The Indian IT industry is also critical of the circular for its failure to understand the operational nuances of the sector. Responding to a query from FE, Infosys in a statement said, “The CBDT circular provides clarity on the issue of transfer of employees from DTA to SEZ units in the years of formation. However, the circular specifies that a percentage of restriction on transfer of employees is applicable at any point of time in the given year. This would be a tedious process and would create tremendous hardship on the companies to maintain records to the satisfaction of the assessing authorities.”
A TCS spokesperson declined to participate in the story saying that it was the company's policy not to comment on taxation-related issues. Questionnaire sent to Wipro and HCL Technologies on Thursday did not elicit any response.
The CBDT circular had clarified that the IT companies can only transfer 20% of their existing employees to an SEZ while the remaining 80% will have to be fresh hires to avail of income tax benefits. Talking to FE, Rajiv Chugh, partner, tax & regulatory services, Ernst & Young, said, “This 80:20 rule is a retrograde step which is not practical to implement."
Chugh says that the IT industry is very dynamic in terms of people movement and it is difficult for companies to keep a constant tab on the 80:20 ratio. NC Hegde, partner, Deloitte Haskins & Sells told FE that under the original SEZ Act, the 20% cap was only on the plant & machinery, and there was no restriction on the movement of people.
According to the commerce ministry statistics, the IT sector has the largest share of the SEZ pie in India, with formal approvals to the tune of around 60%. The Indian IT industry, with export revenue of $86 billion employing over three million people, witnesses a constant churn of employees with attrition rate being anywhere between 10 and 15%. The circular has also brought under its ambit BPO companies, where the attrition rate is much higher.
Rostow Ravanan, chief financial officer, Mindtree,said, “The whole premise of SEZ is of creating employment,