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

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DQW Bureau
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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:

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  • 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.

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