SME Times News Bureau | 29 Jun, 2009
To improve IT consumption in the SMEs CII has recommended that the Government considers according 100% depreciation, once in a block of three financial years, for an annual investment in IT equipment and software up to a limit of Rs 25 lakhs, to the MSMEs. This will significantly lower the tax burden on high-tech investment, induce large scale corporate buying of computers, which will raise labour productivity, increase economic growth and give a big boost to the MSMEs and thus the whole economy.

In a press statement issued here, CII has observed that both the Government and Industry have a common objective of increasing penetration of ICT and Computers in the country, which currently stands very low as compared to the developed and even some of the developing countries. To improve ICT penetration, it is of utmost importance that the absolute cost of purchasing ICT and Computers is brought down.

It further said that the capital cost of purchase can either be directly made cheaper by bringing down the prices of hardware, or indirectly reducing the overall cost of purchase of ICT by providing incentives to corporate and individual to invest in ICT. 100% Depreciation is one such option in the latter category, wherein the SMEs immediately obtains the benefit, by way of reduction in his cost of purchase of a PC to less than Rs. 65 for every Rs. 100 invested.

Adding that “obsolescence”, rather than depreciation, is more relevant for judging the decline in value of capital investment in high technology investments, the CII release mentioned that the tax laws are still based on the old notion of capital physically wearing out, with the result, that investments in such items as computers and software are excessively taxed, because they cannot be depreciated quickly enough to compensate for their obsolescence.

Citing the present regulation of limiting the depreciation rate to 60 % impacts the corporate buying /replacement decision, (as it takes 7 years for the equipment to depreciate, implying a replacement cycle of 2 years, a capital loss of 16% on account of un-recovered depreciation.), the CII release mentioned that higher rate of depreciation will enable MSMEs to bring down there replacement cycle nearer to the 2 year time frame.

Commenting on the significant contribution of MSMEs to the Indian economy, the CII Director General, Mr Chandrajit Banerjee said that an estimated 40% of the industrial output is accounted for by the SMEs. He added that in order to sustain the current rate of economy, the NMCC (National Manufacturing Competitiveness Council) has identified ICT implementation and ICT absorption in MSMEs as a key step towards making the sector competitive. Currently India has an estimated pool of 17.85 Million SME’s. 3.1 million have at least one computer.  This figure represents 17% of the total Indian SME’s, which use modern technology in their business.