PM sets up panel to review taxation of development centres, IT sector

New Delhi: The Prime Minister has constituted a Committee to Review Taxation of Development Centres and the Information Technology Sector.

This will be headed by former Chairman of IRDA and Central Board of Direct Taxes Mr N. Rangachary.

The Committee will engage in consultations with stakeholders and related Government departments to finalise the Safe Harbour provisions announced in Budget 2010 sector-by-sector, a Prime Minister Office Statement said.

Committee members include Ms Anita Kapoor (DG, International Taxation) and Ms Rashmi Sahani Saxena (DIT-TP).

The Committee will engage in consultations with stakeholders and related Government departments to finalise the approach to taxation of Development Centres and suggest any circulars that need to be issued. It will also go for sector-wide consultations and finalise the Safe Harbour provisions.

It will examine issues relating to taxation of the IT sector and suggest any clarifications that may be required.

The new committee has been formed at a time when an Expert Committee under the chairmanship of Mr Partho Shome is engaged in a widespread consultation process and finalise the GAAR Guidelines. This committee is expected to submit its report by September 30.

IT sector
“While this committee would address concerns on GAAR provisions and would reassure investors about the predictability and fairness of our tax regime, it was felt that there is still a need to address some other issues relating to the taxation of the IT sector such as the approach to taxation of Development Centres, tax treatment of ‘onsite services’ of domestic software firms, and also the issue of finalising the Safe Harbour provisions announced in Budget 2010,” the statement said.

Safe Harbour provisions, though proposed in the Finance Bill 2010, are yet to be operationalised. Safe harbour provisions have the advantage of being a good risk mitigation measure.

The Government has noted that nearly 750 multinational companies are operating development centres in over 1,100 locations in India. These entities are involved in product development, analytical work and software development.

However, India can not claim to have a monopoly on Development Centres. This is a highly competitive field with other countries wanting to grab a share of the pie. There is need for clarity on their tax, the statement added.