Why CIOs should Care about the Union Budget 2013

Varsha Chidambaram February 28, 2013
Why CIOs should Care about the Union Budget 2013
The Union Budget has a strong impact on the purchasing powers of CIOs in the country, and can either trigger or stall investments in IT. Here are some of the announcements you should watch out for.

India Inc is currently at a tipping point. Lack of direction in government policy has led to numerous investments being stalled or frozen and pinching the IT budget. Therefore, CIOs in the country are eagerly hoping this Union Budget will provide much needed clarity of government policies which will fuel investments in the right direction. While we hope this budget isn’t a dampener like the last one, here are some of the key announcements that CIOs will be watching out for in the up coming budget.

1. Abolition/Reduction in service tax on Internet, telecom services and duties on data cards and mobile phones (esp. smartphones)

Currently, the Government of India levies a 12 percent service tax on Internet, just the way it does on telecom services. This has been a huge deterrent to mobile and broadband Internet penetration, especially in tier-2 and tier-3 towns inIndia. Abolition or reduction of this duty is imperative to fuelIndia’s mobile growth story.

What this means to CIOs: “The key role of CIOs is to manage implementation of technology in order to increase information accessibility,” says Ritesh Kumar Singh, general manager & group economist, Raymond.

In that respect, reduction of duties on mobile Internet services and telecom equipment such as data cards and smartphones in the Union Budget will give a huge impetus for CIOs to develop and strengthen their investment in mobility.

“Mobile experiences built on systems of engagement are a flash point for far-reaching changes in how you serve customers. Successful mobile apps that empower consumers to take the next most likely action drive explosive growth in engagement,” believes Manish Bahl, vice president and country manager, Forrester.

A favorable budget from the government to support the telecom sector will increase penetration of mobility, thereby allowing organizations to reach a much larger customer base. IDC principal analyst Sanchit Vir Gogia agrees. He says, “Abolishing this service tax will help increase broadband penetration and allow organizations to offer services (hence more revenue opportunities) to consumers living in smaller cities of the country.”

Also read: As CMOs Grab IT Budget from CIOs, Cloud CapEx and OpEx Shift

2. Sops

The IT Industry will be expecting the budget to offer tax sops for encouraging data security or a general tax incentive for encouraging R&D and local software production.

What this means to CIOs:

Tax sops on data security has been a key consideration in getting KPO work and would be something to watch out for the IT industry. On the subject of data security, Gogia from IDC adds that clarity on mandates on datacenters and RBI guidelines for data security can aid CIOs (especially those in the BFSI sector) to fully utilize the benefits of shared computing and encourage cloud computing investments. “There is no single policy on cloud computing inIndia, unlike many other countries which have successfully developed a unified policy on cloud computing. While the government has initiated investment in theStateDataCenterproject, it hasn’t made much headway to help e-governance project to leverage the system.”

Gogia also points to the importance of government support for R&D of software products, stimulus for local production of software, and promotion of local talent. “Abolition of MET for SEZs and providing tax benefits will augment indigenous local software production, allowing CIOs a better and larger pool of talent and resources to choose from,” he adds.

Also read: Taking Business Risks with Your IT Budget

3. Clarity around GST and FDI rollouts

A roadmap for GST implementation that will remove differences in tax treatment of goods and services can be expected.

What this means to CIOs: Lack of clarity and direction on multiple policies like transition to GST has paralyzed organizations’ IT investments. “While realistically, not much is expected on the rollout of GST, if it goes through, it would have a severe impact on ERP rollout and integration of backend processes that CIOs will need to consider,” says Gogia. “Definitive announcement on matters of grave importance like rollout plan of GST and FDI in retail will help IT decision-makers define their next steps,” he adds.

4. Abolition of double taxation on software

The government currently levies multiple-level taxes—sales tax/VAT, CVD/Excise Duty and service tax—on procuring new software. This has caused businesses to pay 15-25 percent more for software products.

What this means to CIOs: Abolition or reduction on service tax can significantly boost the purchasing power of CIOs, and trigger investments in multiple directions. “The government must implement a simplified tax regime which clears this confusion and ultimately reduces TCO for organizations. This is increasingly critical, given the high number of organizations now turning to Software-as-a-Service (SaaS) and leveraging public cloud to deliver applications,” concludes Gogia.

Varsha Chidambaram is assistant online editor for IDG India. Send your feedback to varsha_chidambaram@idgindia.com. Follow Varsha on Twitter at @Varsha_idg.