The Finance Minister announced some unexpected moves which will hurt the IT companies in the form of higher taxes after the proposed higher Minimum Alternate Tax (MAT) rate of 18.5% for units operating in Special Economic Zones (SEZ) and on developers of the SEZs. IT companies have been migrating to special economic zones as tax breaks under the Software Technology Parks of Indian (STPI) scheme will come to end this year under which companies operating in these units had been given a 10-year tax break that was to end in 2010. In the FY 10 Budget, however, this was extended to March 31, 2011. The IT industry had been asking for an extension of one more year until the Direct Tax Code is implemented in 2012.

OIL & GAS INDUSTRY -NEGATIVE

The union budget provided no respite to the mounting under recovery for the Oil Marketing Companies (OMC’s). We expected a decline in the import duty on grounds of rising crude oil prices and losses pertaining to the industry mainly due to the subsidy sharing aspect. But with only consideration to the LPG and Kerosene, which would be provided as a direct cash subsidy to people under poverty line and no concern for the rising Crude Oil prices, the budget is NEGATIVE for the entire sector including companies HPCL, BPCL and IOC.

As we expected the issue of Diesel Deregulation was not taken in the budget and no proposal was provided to deregulate it on the backing of rising inflation.

TEXTILES-NEUTRAL

Union Budget 2011-12 has been positive for the Textile Sector. The Finance Minister has proposed to provide Rs. 3,000 crore to NABARD, which will benefit 15,000 cooperative societies and about 3 lakh handloom weavers. The optional levy of duty on garment and made-ups industry has been converted into mandatory duty of 10%.