OPEC Facts and figures abt Govt Tax on Crude Oil

This graph illustrates the wide regional variations in prices of different energy products. However, this is not due to differences in crude prices, but to widely varying levels of taxation in the major consuming nations. The blue portion of the bar shows how much of the end price goes to oil producers, the yellow is what goes to refineries, and the red indicates the amount attributable to government taxes.

Tax levels can range from relatively low in USA to very high in many European countries. In the UK, for example, the government receives substantially more from taxation than what OPEC gets from the sale of its oil.

Budget 2007: Causing concern for the Indian IT industry

The 2007 Budget has spelt dismay, rather than delight for the Indian IT-BPO industries. The February 28 announcements by Finance Minister P. Chidambaram on the floor of the house, have drawn more frowns than cheers from the IT sector.

A quick study of the Budget indicates the concern areas, that are likely to have a detrimental impact on the growth of the Indian IT-BPO industries. Meanwhile, here are the changes that have been ushered in by Budget 2007.
1. Effective corporate tax for domestic companies up from 33.66 to 33.99 percent as a result of an increase in the education cess from 2 to 3 percent. Limited relief in the form of abolition of surcharge for companies whose income is up to one crore rupees.

2. Dividend distribution tax increased from 12.5 to 15 percent, resulting in effective DDT going up from 14.025 to 16.995 percent.

3. Proposal to extend MAT to income in respect of which deduction is claimed under sections 10A and 10B. This introduces a 11.33 percent cost to such operations—while creditable in future, there will only be a three year window beyond the expiry of the tax holidays under these sections to set-off the MAT paid during the year 2007-08. SEZ units seem to have been left out of the applicability of the MAT.

4. SEZ units faced with restrictive covenants imported from Chapter VIA and sections 10A/10B. These now restrict tax holidays to units that are not formed by splitting up, reconstruction, and clearly spell out the intent of law to provide section 10AA exemption only to “new” units, contrary to the belief held in some quarters.

5. ESOPs brought under FBT. The value of the fringe benefit to be determined, in accordance with a prescribed method, on the date of exercise of the option. Introduction of FBT on ESOPs likely to hit several compensation schemes, burdening employers with additional cost. The entire Fair Market Value will be the taxable value of the fringe benefit, resulting in a tax rate of 33.99 percent on such costs.

Indirect Tax:

1. Test of Export of services made simple, instead of delivery and use outside India, the test to be “provided from India and used outside India.” This could help determine the eligibility for exemption of certain IT services with more clarity

2. Service tax extended to rentals on leasing of immovable property for commercial and business purposes. Introduction of service tax on commercial renting of premises to add to the costs of software companies which will be badly hit as their services are treated as “non-taxable” and hence, refund of such service tax would not be possible

3. Content services for on-line information and database access or retrieval services liable for Service tax

4. Maintenance or repair services to include software services as well
Rs.33 crore allocated for a new scheme of manpower development for the software export industry

ITES - BPO Market

Over the past decade, the Indian BPO segment has witnessed significant transformation. Starting with basic data entry tasks, the industry graduated to a high proportion of voice-based services and a range of back-offi ce processing activities. The last 3-4 years have seen the scope of services expanding to include increasingly complex processes involving rule-based decision making and even research services requiring informed individual judgment.

The rapid expansion in scope of BPO has been accompanied by an equally rapid adoption across a range of vertical industries. This wide range of services may be summarised into four broad categories comprising Finance and Accounting (F&A), Customer Interaction Services (CIS) and Human Resource Administration (HRA), and a wide range of other vertical-specifi c and niche services.

F&A services manage or support aspects of the fi nance and accounting functions of businesses. This includes activities such as general accounting, transaction management (accounts receivables and payables management), corporate fi nance (e.g. treasury and risk management, and tax management); compliance management and statutory reporting, etc. This segment accounts for approximately 40-45 percent of Indian BPO.

CIS includes all forms of IT-enabled customer contact; inbound or outbound, voice or non-voice based support used to provide customer services, sales and marketing, technical support and help desk services.

The HR administration services include payroll and benefi ts administration, travel and expense processing, talent acquisition and talent management services, employee and manager self-service delivery services, employee communication design and administration. This segment accounts for about two percent of Indian BPO.

BPO is witnessing an increasing emphasis on the cost-plus, additional strategic levers that it can deliver include innovation of the underlying business process being outsourced, improved competitive positioning, managing customer expectations, elevation of the strategic role of the retained organisation, optimal resource allocation, support for globalisation of their businesses, and technology support and access. This has also resulted in heightened C-level attention resulting in enterprise-wide evaluation of BPO opportunities – which is in turn opening new avenues to explore.

This steady expansion in scope coupled with low penetration levels is supporting high growth for BPO.

IT Wisdom Deck

Indian companies have successfully leveraged the skill-sets, tools and experience from outsourcing IT software and services, to gain a strong foothold in outsourced product design and engineering.

However significant potential still lies relatively unexplored. Today the scope of outsourced engineering services has expanded beyond product design and R&D services to include industrial services (process engineering plant automation and enterprise asset management).

Engineering Services: The Next Frontier for India:

The Engineering Services market is a huge one. Global spend on Engineering Services in 2004 was US$ 750 billion and is projected to increase to US$ 1.1 trillion by 2020. Of the US$ 750 billion spent today, only a fraction of the total is being offshored (US$ 10-15 billion). The value of work currently undertaken by India-based vendors in this space is estimated to be just 12 percent of the offshored market, highlighting significant untapped potential. Further, with the low penetration levels in industrial services such as plant automation and maintenance (enterprise asset management), the opportunity is set to grow rapidly.

Total Engineering Spend By Vertical (2004):