Kerala resellers want tax issues to be solved

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 govern-ment has revised the tax
stru-cture 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 appli-cable in both the cases, which was also there earlier.
Previ-ously, the government colle-cted 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 alleg-ing it will create more
confu-sion in business and harass-ment from ST sleuths. Mean-while, 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 Harikri-shnan, Director, All
Time Power Technologies P Ltd.

Meanwhile, the SRO facility, which was announced few years back, to avoid
double-taxation of components/produ-cts while building a PC and to promote more
system integra-tors in the market is also com-ing 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 com-munity regularly," said a very leading sub-distributor in
Cochin.

Presently, the traders (distri-butors and channel partners) 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 condu-cted dharnas, hartals and made a
representation to the govern-ment. "Earlier, the Chief Mini-ster 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
posi-tive solution," said K Vijaya-chandra Menon, President (Ernakulam
Chapter), All Kerala Computer Dealers Association.

Meanwhile, a section of rese-llers 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 exc-ept for creating confusion at
all levels. This will give only an upperhand to the officials who are already
harassing the trad-ers," said a leading sub-distri-butor 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.
Moreover, 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 main-taining 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
officials. This will ensure exit of resellers from the business," he said.

Meanwhile, the distribu-tors 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 govern-ment 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 per-cent and pay it to the
gover-nment, 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 dis-tributor in the
country. "In fact, all the other distributors took cue from us and they are
also collecting four percent sales tax till date."

"Kerala is known for its tax confusions and we are used to it. The sales
tax officials here have a very high-handed attitude and harass the rese-llers
frequently," said a representative of another leading distribution com-pany.
"We have been colle-cting sales tax at four percent till June-end. And,
now, we are collecting only three percent as the new system seems to be
implemented."

S Gopikrishna

Chennai