Budget 2019: R&D, talent development investments must be incentivised, says Nasscom

The National Association of Software and Services Companies (Nasscom), the lobby of the software industry, has suggested that the central government must incentivise research and development (R&D) and talent development investments by enterprises ahead of the upcoming union budget to be presented by finance minister Nirmala Sitharaman on July 5, 2019.

“While there has been a continued focus on encouraging IT adoption and allocation of funds across sectors, like an innovation fund for secondary education, there are no specific incentives for R&D for IT companies,” Nasscom said in a statement today.

It further said that more value can be derived by promoting the creation of intellectual property in engineering, research and development (ER&D) by incentivising investments by global MNCs in India and nurturing 1,000 technology spin-offs from the ER&D centres in India, especially through 3D printing that can help generate direct and in-direct employment for 350,000 people by 2025.

According to Nasscom, India’s engineering R&D market has grown to $30 billion in the financial year 2019, and is estimated to touch $42 billion by 2022.

On incentivising talent development, Nasscom said the government can help by allocating a budget of Rs 500 crore for the financial year 2019-2020 to co-fund talent development and re-skilling in IT services.

“With a requirement to reskill 40% of the country’s four million strong IT workforce to cope with emerging technologies, it is recommended to incentivise firms by promoting expenditure on developing skills and training programmes undertaken by the industry,” Nasscom said.

Nasscom also said India should continue to promote itself as a startup hub by continuing efforts to ensure innovation among start-ups and enterprises.

It said investments should be encouraged through “long-term capital gains” from the sale of shares of unlisted companies being exempt from tax while short-term capital gains be taxed at 15% instead of the current income tax slab of the individual.

It further said that investors who invest in eligible start-ups with an intention of value accretion should given be tax deductions on the lines of Singapore and UK.

“Start-ups and SMEs with a turnover of less than Rs 50 crore should also be exempted from minimum alternate tax (MAT),”Nasscom said.

Nasscom has asked the government to ease taxation for the digital economy. “There must be adequate clarity provided with respect to the significant economic presence provisions. These should also be aligned with the proposed consensus of the G20 and Organisation for Economic Cooperation and Development,” it said, adding that tax credit of equalisation levy must also be extended and made available to foreign companies operating in the home country.

It has also said the government should help further in promoting ease-of-doing business.

“By reducing 18.5% rate of MAT for companies, especially those with a turnover of up to Rs 250 crore, and clarifying that secondment of employees would not constitute a service permanent establishment for any foreign entity would help businesses function more effectively,” it said.

Nasscom said that India’s strength in IT-BPM services must be consolidated and invest in e-waste management.

Nasscom has recommended the introduction of a point-based reward system of e-waste recycling credits for formal organisations to channel their e-waste through government-approved recycling centres.

The IT industry accounts for over 6.6% of the nation’s GDP and employs over 4.1 million skilled individuals.