The country's government is planning to make tax rules easy for the information technology sector. India hopes that reduced tax will attract software development companies from abroad and encourage local producers to export their products.
Prime Minister of India has recently gathered a panel in order to make sure India is involved into the $70-billion software industry. Another question on the agenda was how to repair the flagging investment from abroad. Reportedly, Prime Minister recommended making tax rules favorable for the sector.
According to the local media reports, this panel conducted a range of consultations with software analysts before making its own recommendations. For example, Infosys was one of the companies that claimed the tax problem was a key problem for software sector.
The panel gathered by Prime Minister will now be busy with completing the basis for "safe harbor" tax rules for each sector of the industry by the end of the current year. In the end, tax authorities are expected to accept transfer prices of the software companies. But this was not the only complaint for Indian software companies. Another problem is the tax treatment of the revenues made from work that is done at the customers' websites. The matter is that tax authorities have recently raised demands on the software makers, arguing that onsite activities can't be regarded as exports and therefore can't be qualified for a tax exemption. In response to the complaints of the software companies, the government said it will probably take a look at this problem later.