The Crying game

IT-ENABLED SERVICES

What the fast-growing ITES also known as BPO sector really wants 8212; and hasn8217;t got 8212; is a clarification on a recent Central Board of Direct Taxes CBDT circular, which seeks to tax the 8216;8216;core8217;8217; Indian BPO services of overseas firms. Industry bodies have been unsuccesfully lobbying against the proposal. 8216;8216;We are disappointed. This is holding back more rapid growth and larger investment and employment in the BPO business,8217;8217; says Kiran Karnik of Nasscom. But the silence after former FM Jaswant Singh8217;s confirmation of the new tax in his interim budget, earlier this year, means international firms can take it as given. With no impact yet of the proposed tax on the ground, India8217;s 3.6 bn BPO industry must now wait for the inevitable. While infrastructure costs will marginally decline for BPO units, thanks to the relief announced on computer hardware, Budget 2004 failed to surgically remove procedural hassles. The increased across-the-board service tax could well nullify the gains from an extension of CENVAT and service tax credit on inputs.

EXPORTS:

Exporters were hoping against hope for an extension of the sunset clause 80 HHC 8212; that allowed a deduction of 30 per cent of export profits in 2003-04 8212; which expired on March 31, 2004. But the new government is clearly not in favour of extensions. Exporters say the 2 per cent cess on imports will 8216;8216;sharply raise8217;8217; input costs of export units, even though customs duty has been reduced on steel, copper, lead, zinc. All in all, exporters can8217;t really complain: the overall share of exports is expected to go due to the generous focus on agriculture, tax exemptions to new agro-processing units for food and vegetables, and measures for textile and gemstones industry.

OIL:

Was expecting a rationalisation of the customs duty to counter the impact of the hike in the crude oil prices. On the contrary, oil companies would now have to face a 2 per cent cess and hike in some services like transport. This would put pressure on the prices of products, which oil companies are likely to pass on to consumers. According to officials in oil PSU, consumers would end up paying 17 paise or 20 paise more on petrol and diesel prices as an immediate impact of the cess. According to the chief of a leading oil marketing PSU, 8216;8216;The oil sector being the largest tax payer to the exchequer has got a very raw deal in this Budget. On the contrary, we have been burdened with additional tax 8212; some of which would be passed on to consumers.8217;8217;

HOTELS 038; TOURISM:

For all the talk about the job and forex earnings potential from tourism, the absence of a vision statement in Budget 2004 is disappointing. Perhaps next time, say industry players. Sure, the allocation for the sector has been increased to Rs 500 crore, but it was also seeking export status. With many hotels investing heavily in new properties, investment sops were demanded too. All it got was the hike in service tax.

BANKING/FINANCIAL SERVICES

Banking and financial services secors did not get anything noteworthy. In fact, there were a few negatives. Banking and financial services were put uder the service tax net. This would increase the cost of banking transactions. Banks would pass on the burden to consumers. There was a reference by the FM on some expected amendments to the Securitisation Act. However, that alone has not raised expectations on the NPA front. A PNB official warns of a hefty impact on consumers, 8216;8216;The cost of banking services would now go up by around 60 per cent.8217;8217;