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IT bellwethers Infosys Technologies and Wipro on Wednesday termed the budget proposals to extend minimum alternative tax (MAT) to IT firms and fringe benefits tax (FBT) on stock options (ESOPS) to employees as "retrograde measures with far-reaching implications".

"The extension of MAT to IT firms is a clear indication the 10-year tax-holiday enjoyed by IT firms currently may not get extended beyond 2009. Though it is an advance tax against future tax liability, we will have to set off the tax amount from the coming fiscal (2007-08) even as we continue to pay tax on exports abroad," Infosys director TV Mohandas Pai told IANS in Bangalore.

The MAT burden on IT firms is expected to be around 11.3-11.5 percent on book profit.

Pai said the advance tax (MAT) would not, however, impact the company's earnings or its EPS (earnings per share).

According to Infosys chief financial officer V Balakrishnan, the additional burden due to MAT would be 150 basis points (1.5 percent) on its net margin.

Expressing disappointment over extending FBT to Esops, Pai said it was not clear whether the extension would be retrospective or prospective from the next fiscal (2007-08).

"The proposal to consider Esops as fringe benefit is surprising. They (Esops) were introduced under different set of rules earlier so as to attract talent and retain employees. It is not clear whether it (FBT) is applicable retrospectively or prospectively.

"We will be taking up the matter with the finance minister (P Chidambaram) through Nasscom (National Association of Software and Services Companies) soon. As Esops are part of the compensation package, we will have to revisit it because employees may not like to suffer an additional burden of 33 percent of FBT on their share holding," Pai pointed.

Wipro chief financial officer Suresh Senapathy said the industry was disappointed that the much-expected extension of the sunset time till 2009 did not happen despite Prime Minister Manmohan Singh setting a higher target for software exports recently.

"The extension of MAT to IT firms in a situation where there is a committed exemption till 2009 is a retrograde step and not consistent with good principle of governance.

In an environment where the industry is required to focus on building, attracting and retaining talent, imposition of FBT on Esops is also inappropriate and unfortunate. It goes contrary to the overall objective of the industry.

Though the budget is bullish on the economic front and fiscal compliance, it would have been pro-active to the IT industry if the MAT and FBT were not enforced from the prospective of globally competitive sunrise industry," Senapathy said.

Giving an overall comment on the budget, Pai said the proposals were growth-oriented, with revenue collection exceeding targets and the government committing more for social spending.

"From industry viewpoint, there is nothing much to write about. The high excise duty of 16 percent on manufacturing goods is detrimental to an accelerated growth of the industry, as there is no reduction from the high rate. With the addition of 12 percent VAT, three percent education cess and excise duties remaining between 24-30 percent, which is the highest in the world," Pai pointed out.

Senapathy, however, said the budget has some positive takes for the IT industry in the form of budgetary provision to fund training of skilled manpower and additional allocation for e-governance projects.

"Funds earmarked for knowledge training is a positive intervention by the government as it would convert the demographic advantage of India into a world-class skilled labour force. Similarly, e-governance initiatives will enhance the quality of life for citizens with efficient services by the administration apart from creating market for IT hardware and software," Senapathy added.