Today in Tech: Taxation in IT Sector; Headcount game; Bain & Genpact

A panel to look into taxation in IT sector Drive carefully, an old joke goes, our Income Tax department needs every taxpayer it can get. There is always a simmering tension between the tax collector and the tax payer. Sometimes it explodes to capture the headlines, as it happened in Vodafone case. More often, the tug of war takes place over interpretations of the rule book.

For many MNC IT companies that operate in India, the big fight with the tax man is over transfer pricing – or how much a subsidiary bills its parent for the work it does out of India. Rules say a captive should charge as much as it would charge any other company. MNCs say they comply with the rules. But the problem is, there is no scientific way to check if the pricing for the parent is the same as pricing for a client, because the nature of work varies. So, the IT department looks for other indicators, such as comparing revenue per employee of an MNC's captive with  that of a domestic IT firm, to see if there are jarring discrepancies. Often there are  - for example, IBM employs nearly a third of its workforce in India, and yet reports only 5% of its revenues from here - and so begin the disputes. Some of the problems can be traced to rules being too obscure. (Update: Here's an Economic Times story on how MNC IT companies avoid taxes.)

Now, there might be some good news. PMO released a statement yesterday saying it’s setting up a panel under N. Rangachary, former Chairman CBDT & IRDA to look into taxation of development centres and the IT Sector. It looks as if the government does not want tax issues to scare MNC investments. Nasscom, the software industry lobby, has welcomed the move.

IT as if people don’t matter
Mint has a short interview with Jeroen Tas, a senior vice president and Chief information officer of Philips. Philips recently gave multi-year contracts to Cognizant and Wipro. Tas, who is now based in New York, was also a co-founder of Mphasis - and has been in the industry for over 28 years. Here’s an interesting bit from the piece. “I spent the last two days with our partners (Cognizant and Wipro). You can see that they are not talking about how many people they have, how many on bench and so on. They have to prove to me how they can deliver value. That is a big change in the industry.”

The big change refers not only to the use of tools such as solution accelerators, but also to mindset. One senior executive told me that growth of IT/ITES companies was driven mostly by 'more bums on the seat' model. This, he said, cannot go on. Companies will have to focus on business outcomes, build solutions around that, and scale it up. This will demand more out of software engineers, and eventually less of them. The inflection point is likely to come sooner than we think. How well Indian IT services companies are prepared for that is one of the big questions facing IT services sector.

Bain in talks to buy stake in Genpact
The answer for the one of the smaller questions that has been bogging media and analysts might be close. The question is: who will buy the 40% stake held by Oak Hill and Atlantic in Genpact. The answer, Bloomberg reports, is Bain Capital. The deal is worth 1.6 billion dollars, which would make it one of the biggest in the sector. And it could be announced as early as this week, the report says.

Also of interest

• Alibaba Is Said to Be Close to Raising $8 Billion: NYTimes Deal Book
• Why The Open Cloud Wins And Oracle Loses When IT Gets Virtualized: Tech Crunch
• Nike's New Strobing Glasses Enhance Athletes' Visual Acuity and Sensory Skills: Popular Science
• The U.S. Olympic Team's Chief Technologist Tells Us How Olympians Train: Popular Science
• Blogger's new Google+ tab aims to tie two communities together: Verge
• The Reason Why Your Email Address Has an @ in It: Gizmodo
• Social: Zynga’s CEO on the Peril and Promise of Success: 10 Questions With Mark Pincus: Wired
• The Avatar Economy: Are remote workers the brains inside tomorrow's robots?: Technology Review

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