4% tax will ruin us, say local IT bigwigs

The Tamil Nadu State government's recent directive to impose four percent sales tax (ST) on computer software, as part of its massive revenue raising exercise, has attracted wide spread criticism from all quarters. For the IT industry, this came as a bolt from the blue, as it is already in the midst of a crisis due to the on going economic slowdown. This announcement only succeeded in adding to the existing woes of the IT industry.

Not surprisingly, the local IT industry has come down heavily on the recent government's move. Here are the excerpts:


"When neighboring states such as Karnataka and Andhra Pradesh are extending a lot of support, incentives and exemptions to promote IT industry in their region, the present government's move here cannot be justified on any grounds," said BS Maniyan, Vice President, K7 Computing Pvt Ltd, which markets wide range of anti-virus solution in the market. Moreover, he feels, the players from neighboring states are going to get benefited out of this initiative as chances of losing out business to them is very clear. "Certainly, it will happen as they are going to have the price advantage as sales tax is not added up in their quotation," he added.

The local market feels when the market itself not stable and an insignificant amount of sales is happening, the government should not have adopted this method to raise revenue. "This will have only a negative impact and government is not going to make any substantial money out of this exercise," said a Ritchie Street trader.

Meanwhile, few people comment that although the rule is said to come into effect from 1 December, no official gazette notification has been issued so far by the government to commercial tax department. "We expect the government to withdraw four percent sales tax being imposed on software, as it has done in few items a couple of days back due to protest from the opposition parties," said another trader. He also added, the new state government has not done anything for IT except burdening like this.

According to Arun Kumar Nahata, Director, Ace Multimedia which deals with games CDs, encyclopedia and DTP software, "The government's move to impose sales tax on software products will affect only local players here as already the business is dull. Moreover, we cannot adjust the sales tax difference in our margins as already it is very thin and finally pushed to increase the prices for the end-user which affect the sales."

"On one side, the vendors and distributors are fighting hard to kill piracy in software business, while the government's decision like this will end up in more illegal operations as the product prices are going to shoot up which will prevent users from buying it," said B Ravishanker, DGM, Veeras Infotek, dealers of Microsoft, Oracle, IBM, Citrix, Network Associates and Symantec products. "Already when the government has Income Tax as a component to check those who do good turnovers, this is unnecessary and deterrent to the business."

Most of them feel that when government wants to promote IT why it should resort to this initiative.

"We are having a tough time in closing business where the lead time goes from three to four months. We have given quotations for orders worth rupee several lakh before this sales tax being imposed and now when we close the deal we are not able to add this sales tax as the customers are refusing to pay it as it sums up considerable. Either we have to bear this or lose the order," said Ashok Dash, Branch Manager, Select Technologies Pvt Ltd.

"If it has to be done, it has to be done on an all India basis, otherwise it cannot be justified," said Jitendra Kulkarni, CEO,

Redington.

"Although, the state government say that the present move is to comply with the central directive, the central government itself has decided not to tax the software business to promote it. So how it can be done," said PK Viswanathan, Director, Vectra Systems & Solution Pvt Ltd.