IT tax panel will bring clarity, says Nasscom

New Delhi: Software industry body Nasscom has said the government's decision to set up a panel to look into tax-related issues will help allay concerns of the IT sector.

Prime Minister Manmohan Singh on Monday set up a committee to look into taxation matters of the IT sector and research and development activities, to provide clarity on such issues.

"We believe this announcement would allay concerns of industry, global corporations and investors...I would like to thank the PM for his proactive support in creating this committee that will help to address current issues being faced by the sector as well as focus on implementing the Safe Harbour provision," Nasscom President Som Mittal said in a statement.

The panel has been set up to address issues like approach to taxation of Development Centres, tax treatment of 'onsite services' of domestic software firms and those related to finalising Safe Harbour provisions announced in Budget 2010.

Safe Harbour principles are international disclosure practices to check litigations in transfer pricing – an accounting mechanism undertaken by MNCs to reduce tax liabilities.

Saying that India is a major destination for global sourcing of technology and BPO, Mittal stressed on the need for a consistent policy regime that is important for the industry to continuously grow and innovate.

"Multinational development centers have played a key role in building the industry, create best practices and demonstrate the overall value proposition of India," he said.

An announcement by the Prime Minister demonstrates the focus and commitment that the Government of India continues to provide for enabling the growth of the IT-BPO industry in the country, Mittal added.

The panel, headed by former Central Board of Direct Taxes (CBDT) chairman N Rangachary, will be in addition to the one set up to review the General Anti-Avoidance Rules (GAAR) provisions to address the concerns of foreign investors.

The new four-member committee will hold consultations with stakeholders and related government departments to finalise the approach to taxation of Development Centres and suggest appropriate measures.

The panel will finalise the approach to taxation of Development Centres and the IT Sector by August 31, 2012 and will suggest clarifications and changes that may be needed to remove ambiguity.