IT Cos Face Tax Rise Despite SEZ Shift

Last month, HCL Technologies Ltd, India''s fifth-ranked software services vendor by revenues, inaugurated a new office in a 46-acre campus in Noida, a satellite town in Uttar Pradesh. When fully built, the facility will offer 2 million sq. ft of space-one of the largest in north India-and house 15,000 workers. Such a mega software development centre is not uncommon in a country that accounts for two-thirds of the tech and back-office support work sent offshore by leading global corporations. What is new is the scramble among India''s large tech and back-office service firms to set up offices in the so- called special economic zones, or SEZs. HCL''s Noida facility is one such.

Reason: a crucial tax exemption on software exports under a so-called Software Technology Parks of India, or STPI, scheme comes to an end in March 2009. With the government showing no signs of extending the tax benefit scheme started in 1999-the industry has been lobbying for a 10-year extension-firms are rapidly moving business into SEZs, which offer a 100% tax exemption on pre-tax profits for the first five years. In the subsequent five years, the exemption shrinks to 50%.