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Contributed on September 1, 2020

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IT-ITES export competitiveness: Interaction with Minister of Commerce and Industry

Blog: NASSCOM Official Blog

On 19 August 2020, NASSCOM had an interaction with Shri. Piyush Goyal, Minister of Commerce and Industry, to discuss policy measures to boost export competitiveness of the Indian IT-ITES industry. Following this meeting, further discussion was held on the subject within the industry and with the ministry officials and a detailed note was submitted to the Ministry of Commerce on 27 August 2020.

Our suggestions include abolishing OSP Terms & conditions, measures to enable long term Work from Home, relaxing restrictions on telecom connectivity, addressing GST related issues, improving EoDB and nurturing Engineering R&D services. A snapshot of the key recommendations is provided below.

1. Enable long term work from Home for SEZ and STPI units : Rules that govern SEZ and STPI needs to be relooked to address issues that hinder remote working on a long term basis.

 In the context of SEZ, we have suggested the following.

• Provide explicit clarity in SEZ rules to enable WFH on a long-term basis.
• Remove condition to tag employees to a particular SEZ unit.
• Allow reduction in operational area on account of permanent work from home subject to meeting export obligation.
• Allow permanent movement of duty -free assets from SEZ units.
• Introduce a one-time waiver on the custom duty for units which are considering surrendering their SEZ benefits and are looking to move to a higher tax regime.
• Allow units surrendering their SEZ benefits to set off their past unutilised MAT credits against their future tax liability.
• Clarify that Services rendered by SEZ employees while working from home will be treated at par with as such services are rendered from SEZ.
• Clarify that units will be eligible to claim benefit of zero rating in case of purchase of assets and direct dispatch to employee’s place.
• Clarify that the home location of the employees, both permanent as well as temporary, deployed by the registered person shall not be treated as place of business.
• Exempt from e-way bill the movement of IT assets by units for the purpose of WFH.

In the context of STPI, we have suggested the following.

• Enable movement of other equipment for remote working, in addition to laptop and computer
• Waive requirement of e-way bill, for the movement of IT assets by units for the purpose of WFH

2. Service Exports from India scheme ( SEIS) : With regard to SEIS, we have suggested the following.
   • Notify SEIS scheme for FY 2019 and 2020 and extend the scheme for another five-year period i.e. 2021-2026
   • Encourage new age services exports through inclusion of new services ( New digital services in the field of artificial intelligence (AI), machine learning, Augment/ Virtual reality (AR/VR) etc. & Engineering R&D services) under the CPC classification of SEIS.

3. Abolish OSP Terms and Conditions: The BPM industry is required to comply with the Other Service Providers terms and conditions (OSP T&C). These regulations were issued 20 years ago to — provide special dispensation to the then nascent BPO industry, collect statistical information and prevent infringement into the jurisdiction of the telecom service providers. Today, almost all telecom traffic is carried on the Internet. The case for diverting expensive international calls by using data connectivity as opposed to using the traditional Public Switched Telephone Network (PSTN) route which could result in revenue loss for telecom operators is no longer material.

4. Relax restrictions on telecom IP-PSTN connectivity : The present regulations bars entities other than licensed services providers to merge Voice Over Internet Protocol (VOIP) and PSTN traffic, meaning calls on data (internet call) cannot be merged with a call on a fixed voice line or on cellular network (on a voice channel) by except in relatively narrow cases subject to licensing requirements. In the context of the BPM/ ITES industry, the current restrictions translate into redundant costs in the form of a requirement of duplicating the infrastructure separately on voice and data networks. Therefore, there is a need to Relax restrictions on telecom IP-PSTN connectivity.

5. Good and Service Tax (GST) : With regard to issues related to GST, we have suggested the following.
   • Safeguard exports from “intermediary” tax.
   • Address concerns on taxation of cross-border Free of Cost (“FOC”) supply of software between related parties.

6. Nurture Engineering R&D services
   • Build innovation clusters to develop cross-industry innovations and propel economic growth.
   • To enable export-oriented manufacturing, Preferential Market Access (PMA) policy needs to change the value-add norms (currently based on BOM%) to allow market access to manufacturers based on based on globally accepted norms of “substantial transformation”.
   • Make India more attractive for MNC R&D Centers/ GCCs and services exports by providing tax exemption ( 100% for 3 years & 50% for next 2 years) and by reducing the transfer pricing margins prescribed in the Safe Harbour Rules.
   • Provide Tax incentives for R&D:
     1. Reintroduce Section 35 (2AB) of the Income Tax Act, 1961 which allowed 200% weighted deduction of R&D expenditure and extend it to service companies.
     2. Introduce a provision in the Income Tax Act, 1961 to allow 20% additional depreciation for plant & machinery used in R&D units.
     3. Extend deduction under S.80JJAA of Income Tax Act to taxpayers having income from profession and increase threshold of total emoluments from INR 25,000 per month to at least INR 50,000 per month.

7. Improve Ease of doing Business ( EoDB) 

• • Replace Softex Codes by GST Codes to improve the ease of doing business
  • Simplify the process of SOFTEX certification and make it completely paperless

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