Software piracy caused $866 mn tax loss to GoI: IDC

Over the
past
decade, India's IT sector has become a growth engine for the
economy with rising contribution to GDP, tax revenues, employment and
value creation. However, for the Indian economy to realize the full
potential of the value generated by the Indian IT industry, it is
imperative to curb revenue losses to the exchequer from the high
rates of software piracy in India, especially in companies and
organizations. Businesses, who are otherwise legitimate, use software
on a large scale but they evade paying tax when they are not buying
licensed software, thus causing huge loss to the state exchequer and
disruption of the domestic software eco-system. This was stated in an
IDC white paper, “Software Piracy in India: Costing Millions to
State Exchequer in Tax Losses,” which was sponsored by
Business Software Alliance (BSA).

The research
paper found that in 2010, IT companies paid nearly $3.04 bn to state
exchequer in tax. By 2014, the tax receipt is expected to grow to
$5.7 bn with IT spending expected to grow at a CAGR of 15% until
2014. Despite the growth, substantial value in form of potential
revenues is lost due to software piracy. With software piracy rate of
65% in 2009 (more than six out of ten PC software programs installed
in 2009 were not paid for), the study finds that only one-third of
the overall PC software revenues are captured by the industry
incumbents and the rest is lost to the software piracy. Consequently,
in 2009, the state exchequer tax receipts loss was approximately $866
mn in net taxes, both indirect and direct.

According
to
IDC study, 65% software piracy of packaged software caused:

• Loss of
  commercial value of unlicensed software totaled over $2.27 bn causing
  the domestic economy to lose $5.3 bn of software, services and channels
  revenues to software piracy.

• The
  indirect tax receipts would have contributed $553 mn from software
  (media and paper licenses) and services-related business transactions
  and direct tax receipts would be around $313 mn for the Indian economy.

Keshav S
Dhakad, chair, BSA India Committee said, “While the IT industry has
consistently ensured the Indian economy maintain a high growth
trajectory, it remains vulnerable to high rates of piracy in India
resulting in lot of value erosion across various fronts. This in turn
affects the entire value chain from distributors to traders to
resellers and hampers job creation in the areas of sales, marketing,
distribution, installation, maintenance, development, customization,
consultancy, training, education, which are heavily dependent upon
robust and protected software eco-system. High incidents of tax
losses to the government due to software piracy hinder revenue
generation for the State.”

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The study
also found that reducing software piracy will stimulate spending
throughout the IT value chain. Because of software's unique role as
a revenue generator for local service and distribution companies,
three-quarters of the benefits generated by reducing software piracy
are enjoyed by the domestic economy. For example, if PC software
piracy is curtailed by 5% in 2011, IDC estimated that the incremental
potential industry revenues or the GDP contributions will be $790 mn,
tax revenue of $95 mn and more importantly, 26,108 new high-skilled
jobs will be created.