Kerala resellers embroiled in tax issues

With sales tax (ST) issues compounding on the resellers, the channel
community in Kerala is looking forward to an early solution from the state
government, which is currently sitting for the Budget Session in the assembly.
Recently, in the state budget last, the government has revised the tax structure
by announcing that it will be collected in two parts, first, three percent at
the time of the first sale and second, one percent at the time of sale to the
end-user. The surcharge (additional sales tax-AST) of 15 percent on sales tax is
applicable in both the cases, which was also there earlier. Previously, the
government collected entire four percent at the time of first sale. This new
ruling has invited wide spread criticism from the trader community who protested
against the government alleging it will create more confusion in business and
harassment from ST sleuths. Meanwhile, the state government had announced that
it would look into the matter and consider revoking it after the Lok Sabha
elections, which got over recently. "Now, we all are looking for speedy
redressal of this issue as it has created enough confusion and damage to
business," said PK Harikrishnan, Director, All Time Power Technologies P
Ltd.

Meanwhile, the SRO facility, which was announced few years back, to avoid
double-taxation of components/products while building a PC and to promote more
SIs in the market is also coming under attack as it lacks clarity and
objectivity.

"Tax issues are a plenty in the local IT market in Kerala and this has
made many small time players to close shop and get out of the business. Mainly,
they were not able to withstand the harassment from the officials who torture
the trading community regularly," said a very leading sub-distributor in
Cochin.

Presently, the traders (distributors and channel part-ners) are not complying
with the new ruling of collecting sales tax in two parts, albeit it came into
effect from April. "We are sure the government will rollback this decision
and our trade unions are very strong to fight it and get it. In fact, the new
sales tax ruling is not only for IT but for all the trades," said
Harikrishnan.

All Kerala Computer Dealers Association, a newly formed body which has
representatives from all the districts of Kerala, along with All Kerala
Vyavasayi Vyabari Ekobana Samidhi, another powerful association representing the
entire trading community, had already conducted dharnas, hartals and made a
representation to the government. "Earlier, the Chief Minister and Finance
Minister had agreed to look into this matter and find a solution at the
earliest, since elections were there at that time. Now, as the legislative
assembly is meeting for the Budget Session, we are hopeful of getting some
positive solution," said K Vijayachandra Menon, President (Ernakulam
Chapter), All Kerala Computer Dealers Association.

Meanwhile, a section of resellers are worried what will happen if the
government is not considering the option of rolling it back, as most of them did
not maintain any records for the transactions. "I sell most goods to the
fellow resellers and they would not qualify as end-customers, in that case I
need to maintain Form 25-A to prove that I sold goods only to a trader and not
to any end-customer. However, the new system is not going to add any value or
bring in additional revenue to the government except for creating confusion at
all levels. This will give only an upperhand to the officials who are already
harassing the traders," said a leading sub-distributor in
Thiruvananthapuram.

According to the resellers, the government wants to collect tax on the
profits (margins) also and which is why they have fixed one-percent tax for the
final sales to the end-user. "Already, the central government is talking
about implementing VAT (value-added tax) from April 1, 2005, which is similar to
this. And since that is approaching soon, there is no need for this now.
Mor-eover, margins are very thin in this industry and the new system would not
bring any additional revenue for the government," said George Thomas, CEO,
Aldous Glare Trade and Exports.

The resellers feel maintaining of Form 25-A is not an easy job since the form
has to be signed by the owner of the company, who is buying the product.
"How would we verify whether the signature is of the owner and maintaining
records at all levels will not be possible? There are many small time resellers
who would not be able to follow it and they will come under pressure from the
offi-cials. This will ensure exit of resellers from the business," he said.

Meanwhile, the distributors are billing still at four percent tax and they
want to take a safe position even if the government is going to implement it or
not. "We do not want to take any risk since, tomorrow, the government may
rollback because of pressures from the trade unions. At that time, we have to
run to the resellers to get that difference of one percent and pay it to the
government, which is not possible. Instead, we want to hold that and even if the
government implements the new system we are ready to pay and settle the
resellers based on the purchases they made with us. We have done that in similar
situations earlier," said a source close to a leading distributor in the
country.

S Gopikrishna

Chennai