NEW DELHI/MUMBAI: India’s homegrown software product firms have urged the government to reform the sector, in order to better compete with global rivals.

About 120 large product companies, including prominent ones such as Zoho, Freshworks, Tally Solutions and Quick Heal Technologies, have written to Union Minister of Electronics and IT Ravi Shankar Prasad requesting that the government should do away with tax deducted at source (TDS) on local software products and Softex forms that assess the value of a product each time it is exported.

“We have represented through iSPIRT (software products industry lobby group) time and again to remove both these provisions, to no avail,” the letter said, adding it was a much-needed reform considering the present global economic conditions.

After the Goods and Service Tax became central to all sales and purchase data, these provisions are totally redundant, especially for the software products industry, said Sudhir Singh, Fellow at iSPIRT.

Last year, India announced a software product policy to promote local product companies and build a strong ecosystem.

“Subsequent to the announcement of the software product policy there was an expectation in the software product industry that the government will make sweeping reforms to promote this industry,” the letter added.

The Indian Software as a Service (SaaS) industry touched $3.5 billion in revenue in financial year 2020. By 2025, the addressable global opportunity for SaaS companies is expected to be worth $400 billion, as per a study by Nasscom.

The mission is to transform India from an IT services to an IT products destination in order to reach the $5 trillion GDP dream by 2025, said Suresh Sambandam, CEO of SaaS firm Kissflow and OrangeScape.

“Sometimes, we generate invoices for $30. When done for IT services, you do consulting exports in millions of dollars, so it makes sense to go through the process, but not for making invoices at such trivial values and when the products are already priced,” he said on the need to remove the Softex process to export software products.

Elimination of the Softex forms will dramatically increase ease of doing business for product companies, specifically for SaaS companies. India’s pure-play SaaS companies generated revenue of $2.5 billion in financial year 2020 and have the potential to grow to $13-$15 billion by 2025, according the report.

“These are very simple, straightforward changes we are expecting,” said Sambandam, who is also a council member of the National Software Product Mission, an 11-member national level council set up by the government last year to identify areas to promote software products.

Krish Subramanian, co-founder and CEO of Chargebee, said it is not ideal if “businesses have to make a choice between hiring a salesperson to grow versus an accountant for compliance,” referring to the difficulties faced by small companies and startups in filing TDS. “If overheads are lower, it makes operations easier.”

The IT ministry should remove hurdles around ease of doing business for the software products industry, said Nakul Saxena, Director-Policy, iSPIRT.

“Government should also quickly introduce incentive programmes for MSMEs to buy Indian software products,” he added.