IT majors Infosys, Wipro and HCL Technologies will face a spike in operating costs over the next five years as their offices in Special Economic Zones (SEZ) across Karnataka are nearing the 10-year tax holiday they enjoyed under the state's SEZ policy.
Karnataka's SEZ policy of 2009 grants exemption from state and local taxes, including stamp duty, registration fees, sales tax and value added tax. IT companies are also not required to pay Maximum Alternative Tax (MAT) for the 10-year period. Once the contract expires, it cannot be renewed, resulting in the companies having to pay MAT and other taxes. This can shoot up operating costs for the IT companies.
The state policy extends benefits of the SEZ policy to units (enterprises) for 10 years from the date when operations started. Developers who are involved in construction activities in the zone are eligible for benefits for 15 years from the SEZ notification date.
While Wipro's office in Electronic City is already shifting to Whitefield, according to Bangalore Mirror, the company's operations at Sarjarpur Road also complete 10 years in November this year.
"The offices in these towers are being shifted to another Wipro campus in Whitefield. Without the SEZ rebates, it works out expensive and the operating costs will shoot up. The two towers will be leased/rented out to commercial spaces for revenue generation. This is also an exercise to cut costs, in terms of manpower and numbers," a source told the newspaper.
Infosys, which also has offices in Mysore and Mangalore, will complete a decade of operations in 2017. The IT services exporter's office in Mysore became operational in April 2007 while the Mangalore office started operations in October the same year.
Other IT companies will also soon start weighing their prospects at different locations. HCL Technologies became operational in January 2010 while Larsen & Turbo began its IT operations in March 2013 at their current campuses. These companies, together with companies in Bagmane Tech Park at CV Raman Nagar in the city, will see their terms come to an end in the next two to six years. Bagmane Tech Park became operational in August 2008.
IT/ITES sector reaps the most benefit from the tax exemption over any other sector in Karnataka. More than 40 out of the total 96 companies/developers under SEZ in Karnataka belong to the IT/ITES category, according to the centre's SEZ list.