IT exports to Japan to top $1,500 mn

The export of software and information technology services to Japan could triple to $1,500 million in the near future if Indo-Japan double taxation avoidance agreement is renegotiated.

"Currently the export of software and IT services to Japan is just 4-5 per cent of the total exports amounting to $500 million. With tax problems resolved, the export to Japan will touch $1,500 million," said Mahendra K Singhi, president of the Associated Chambers of Commerce and Industry in India, in a note submitted to the Commerce Ministry.

The proposal mooted by Assocham on Indo-Japan double taxation avoidance would help Indian IT companies to set up operations in Japan on the back of lower tax burden.

Singhi said that Japanese authorities classify offshore income as royalty and withhold tax in Japan under Article 12 of tax treaty.

As the withholding tax is as high as 20 per cent and is on gross basis, the ultimate tax impact on net margins is very steep and works out to be more than 40 per cent.