Software association Nasscom has said the final circular on taxation of ITeS-BPO companies should be more explicit and clear about the 'arm's length principle' to remove uncertainties from the mind of foreign investors.

"We have sought an explicit stand and stated policy that if an Indian entity is liable to be taxed at an arm's length for its activities, no further income would be deemed to accrue to the foreign principle irrespective of the nature of activities -- core or non-core -- performed in India," Kiran Karnik, President, Nasscom, told reporters at a Ficci meet.

He said Nasscom would submit the industry feedback on the revised draft circular on Monday to the finance ministry.

On August 9, Central Board of Direct Taxes had issued a draft circular, proposing to determine the profits on the basis of 'arm's length principle' for taxation in the ITeS and BPO sector to end discrimination in the sector.

The decision, approved by Finance Minister P Chidambaram, comes in the wake of several tax payers and chartered accountant firms writing to the government that a CBDT circular dated January 2 had led to a controversy particularly on 'core' and 'non-core' activities in ITeS and BPO services.

Expressing unhappiness over the recent decision of the Karnataka government to raise sales tax on IT products and services, he said when there should be all-round efforts to increase PC penetration in domestic IT market, such moves hinder growth.

"The Karnataka government's decision to increase the sales tax from 5 per cent to 12 per cent on IT services and products sends a wrong signal. We would want a total withdrawal but if that's not possible, then it should not be increased at least," Karnik said.

Agreeing with Wipro Chairman Azim Premji, he said the government could look at increasing the professional tax rather than taxing the industry through sales tax.