The Kerala IT Policy – What’s in it and the way ahead

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Fiscal Incentives:  Fiscal incentives for a period of five years have been provided for all eligible companies operating in Kerala other than in an SEZ.  The fiscal incentives include the following:

1. State Investment Subsidy at the rate of 30 percent of Fixed Capital Investment subject to a limit of Rs. 15 lakhs has been proposed for companies located in Thiruvananthapuram and Ernakulam districts. For companies located outside the districts of Thiruvananthapuram and Ernakulam the applicable SIS will be 40% of Fixed Capital Investment subject to a limit of Rs. 25 lakhs.

2. IT industry units, Government IT parks, certified IT parks and Akshaya e centres are entitled to power tariff under HD1 industry and LT 1V industry depending on the supply of and connected load to the IT industry.

3. IT units in Government IT parks have been provide exemption from stamp duty and registration fees upon executing lease / sale agreement with the park for lease / sale of land and built up space and also exemption from entry tax for goods like machine equipments, capital goods and construction materials procured for implementation of infrastructure projects. 

4. Infrastructure developers in Government IT parks have been provided exemption from stamp duty and registration fee and transfer duty on land including concessions in the power tariff.

5. In order to encourage IT software units having its registered office in Kerala and employing a minimum of 30 percent of its workforce in Kerala operations would be given a pricing preference of around 7.5 to 10 percent subject to satisfaction of conditions on IT software solutions required by the Kerala Government/ PSUs/ Government Bodies.  This is definitely a move which deserves a lot of credit as this is one area on which most other states have not given a thrust on while drafting their respective IT policies.

The way ahead

The Kerala Government has definitely taken the right stride towards the drafting of a much needed IT policy framework considering the growth potential that Kerala has to offer.  In our view there can be certain prospective changes evolved into the IT policy when compared with the IT Policy of certain other states like Gujarat, Chennai and Karnataka.  In our view some of the major initiatives which the Government may consider to be evolved into the IT Policy would be as follows:

Exemption: The fiscal benefits, for instance, the stamp duty exemption currently being proposed to be provided to Government IT parks, could be extended to all IT Parks, irrespective of whether it is Government sponsored or not.  This would enhance greater participation of the private sector apart from proffering the benefits of competition.
 

Cyber Security: It is important for the State to provide highest level of security to eliminate offences pertaining to violation of data security, confidentiality of documents and non disclosure of agreements.  Thus the need of the hour is to formulate a comprehensive data security policy by initiating measures to strengthen the Cyber Crimes Cell and by spreading awareness on various aspects of cyber crime.

Additional methods to boost Research and Development:  Although the current IT Policy contains initiatives to promote Research, the Government could also consider implementing new initiatives in relation to the same like facilitating partnership between educational institutes and industry to encourage students to take up research in the ICT area.  It would also be important to encourage industries to set up in house research facilities for specific research initiatives and also to explore the feasibility of setting up Research Parks in the State.

Introduction of a single window scheme: It would be important to provide a single window Government interface for all IT/ ITES units within the state so as to minimize procedural delays and paper work.  This scheme is already being successfully implemented in Tamil Nadu.  This can also be included as a fee based service.

Relevance of Corporate Social Responsibility: It would be important to include initiatives in the IT Policy to encourage investing companies to participate in community and social development activities.  Suitable provisions for the same would need to be incorporated in the Memorandum of Understanding signed with such Companies.

Leveraging the NRI Keralites: Kerala has a pool of human talent working outside India.  Time has come to ensure that their talent and funds are utilized for productive investment in the state especially in the IT sector.

Role of Municipal Corporations: The key requirement for Kerala at this juncture is investment and development of infrastructure.  In this regard it would be important to advise the Municipal Corporations and Urban Development authorities to develop town planning schemes for the development of infrastructure and for the development of IT Industry/ IT Parks.

KPO: It would also be appropriate to put in initiatives to encourage companies to undertake activities in the area of knowledge process outsourcing so as to update the technical skills and expertise of the available human resources.

If future generations are to remember us more with gratitude than sorrow, we must achieve more than just the miracles of technology. We must also leave them a glimpse of the world as it was created, not just as it looked when we got through with it.  The Kerala IT Policy definitely has initiatives which are bold and welcome.  But the thrust is on implementation and the success of the policy would be based on the combined leverage obtained by the Government working together with the industry.

About the Authors
CA Sherry Samuel Oommen & CA Balakrishnan K are tax professionals working in Cochin.  The views expressed by them are purely personal.  They can be contacted at sherryoommen@kpmg.com & balakrishnan@kpmg.com

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