Vizag IT firms look for brighter times

By SNV Sudhir

Visakhapatnam, Mar 29, 2013: The new tax policy has taken the sheen off the information technology sector in Visakhapatnam that is already bogged down by the severe power crisis, infrastructure issues and poor human resources.

IT firms in Vizag are now losing business to low cost countries like Philippines, Sri Lanka, Brazil, Vietnam, Thailand, Indonesia and some Russian block countries, where the expenses are low.  

The union government has imposed Minimum Alternate Tax (MAT) at 18 per cent, even in SEZs, where earlier all exports were exempt from income tax. All IT exports outside the SEZ are taxed at the regular tax rate of 33percent. Besides, the government has also introduced service tax.

For every invoice raised domestically 12.3percvent service tax has to be paid even if there is delay in client payment. If invoice is raised this has to be paid. “Previously we could pay after client paid and it was 10percent. Now rules changed to pay 12.3percent and even if client does not pay. We have to pay.  For every invoice raised government is collecting 22.6percent (10 percent income tax and 12.6 service tax). Now offer letters issued are on hold. Pay hikes are on hold. Cost cutting is in place. Opimization of work force is the buzz word. Reduced billing is the in thing now. Every company is facing lesser billing and no hikes at all 90percent of the time,” observed Rushikonda IT Park Association (RITPA), president and CEO of Symbiosys Technologies, O Naresh Kumar.

He added that  many companies when they outsource work to small companies in cities like Vizag they are spending 10.3percent as TDS, 12.3percent service tax and a minimum of 20percent profit for service provider, which means when they give business out it costs them at least 10.3percent+12.3percent+20percent+adminisntartion expenses which equals to total 50percent more.

“So they are reducing outsourcing and doing works in house. There is severe cost cutting. Meanwhile we are not able to offer competitive prices with so many other domestic problems,” he pointed.  

There are around 100 medium, small and big IT and ITES firms operating in Vizag with 10,000 employees.  Most of the units functioning in Vizag, deal in end-to-end business integration, medical billing, financial information processing, ERP product, content management, networking, business, recruitment process outsourcing, and medical transcription.