Data center firms seek industry status, concessions for green power usage from Budget 2022

Data centre firms that have been ramping up their India presence over the past two years are seeking industry status, a reduction in the goods and service tax (GST), and concessions for adopting green technologies for power generation from the Union Budget this year.

“Data centres, which operate in India for overseas customers, are expected to continue being treated as zero-rated export supplies. The GST legislation taxes most domestic industrial services at 18%, which would apply for data centres as well. However, their supplies to overseas customers would be zero rated as mentioned above. Adoption of green technologies by data centres and others could also be provided a beneficial tax treatment,” said M.S. Mani, Partner, Deloitte India. 

According to B.S. Rao, vice president, marketing at CtrlS Datacenters, the government should give a GST waiver for data centers that are under construction, and concessions for functioning ones. He, too, asked for tax concessions for adopting green technologies and industry status for the entire sector.

Data center firms also want waivers for electricity for 5-7 years from the date of commencement of a unit, said Rao, pointing out that cost subsidy between 40-60% would help firms like CtrlS.

Manoj Paul, managing director of Equinix India, corroborated that the government should make provisions in the Budget for “big investments” in power generation and improving power distribution infra for upcoming data centres which will need hundreds of megawatts of power to run efficiently. “The industry has also highlighted changes needed in power distribution policies to enable the data center industry to use green power more effectively,” he said, adding that a “clear roadmap” for data protection policies is also needed.

The data center market is driven by the deeper internet penetration, increase in digital data traffic, public cloud services, and higher expected growth for the internet of things (IoT). The data centre sector in India is expected to draw billions in investments in India over the next few years, as the country is expected to become a hub for South-East Asia’s digital ecosystem. For instance, Singapore-based real-estate firm CapitaLand announced a $1.5-2 billion investment to ramp up its data center presence in India,

Sunil Gupta, co-founder and chief executive office of Yotta Infrastructure said that government expenditure in capital goods, engineering, and infrastructure is expected to increase, aligning with its vision of transforming India into a data center hub. Industry experts have also said that stimulus packages for the industry, that have been in the works, should be sped up.

Lastly, a large number of data center players are looking for clarity on India’s upcoming data protection regulations. The committee on the Data Protection Bill tabled its report during the Winter Session of the Parliament in December 2021, but the final bill is yet to be cleared. Gupta said that the bill should also create a “framework” to host third-party data centers and implement a proposed Data Center Incentivization scheme for the sector.