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Tuesday, Jan 11, 2005

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Chamber sees scope for IT services in Japan

By Our Special Correspondent

NEW DELHI, JAN. 10. The Associated Chambers of Commerce and Industry of India (Assocham) has mooted a proposal for renegotiating the Indo-Japan double taxation avoidance agreement to facilitate Indian IT companies to set up operations in Japan to tap the world's second largest market.

According to an assessment carried out by the chamber, at present exports of software and IT services to Japan are just 4-5 per cent of the total exports in the sector (around $500 million).

With tax problems resolved, the chamber President, Mahendra K. Sanghi, in a note submitted to the Commerce Ministry, said exports to Japan could triple to $1,500 million in the near term on the back of a lower tax burden on Indian software majors servicing the Japanese market.

The chamber chief further said the Japanese authorities classified offshore income as royalty and withhold tax in Japan under Article 12 of the tax treaty. As the withholding tax was as high as 20 per cent and was on a gross basis, the ultimate tax impact on net margins was steep and worked out to be more than 40 per cent.

Mr. Sanghi has also stated that Japan farm-protection policy with subsidies and high tariffs still remains in place since its last review conducted two years ago.

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