VAT problems plague North India : 1.5% increase in Rajasthan

Unveiling of the state budget by Rajasthan Chief Minister, Ashok Gehlot has
stirred the sentiments of sub-distributors in the region. In the budget, the
government has increased VAT on all the products under the bracket of 12.5 to 14
percent. IT products that would now be taxed at 14 percent are consumables,
multi-functional products, projectors and its accessories and software licenses.
Another worry for sub-distributors in Rajasthan is that the VAT on all these
products is only four percent in Delhi.

The proximity of Jaipur to Delhi pulls resellers and end customers to buy
products from Delhi where the VAT which is much lower as compared to that in
Rajasthan, and this is further going to create an impact on the distribution
business in the state.

“The government had already levied 12.5 percent VAT on some of the IT
products, which was much high as compared to Delhi. Now, further enhancements in
those segment is surely going to create a threat for the sub-distributors in
Jaipur, Udaipur and other regions. Because of the price difference, resellers
and end customers prefer to buy the products from Delhi, which is close by. This
kills the sub-distribution business in the local areas and the government is not
realizing this,” commented Manish Aggarwal of Jaipur-based Kanchan Computech.

It is being reported that even the corporate buyers in Rajasthan prefer to
purchase products from Delhi instead of the local dealers because of the
difference in VAT.

Earlier, vendors like HP had been giving tax benefits to the partners in
Rajasthan. But because of the government's decision to further hike the rate and
looking at the current market scenario, vendors have refused to provide any
further relief.

Rakesh Aggarwal of Krishna Computech, Jaipur, who deals in consumables, added
that the hike in VAT in Rajasthan would create an estimated loss of Rs 10 crore
per month at the sub-distributor level.

The announcement of increase in VAT has been implemented with immediate
effect. However, as the government is itself a potential buyer of IT products in
the state, any increment in VAT is going to hit them as well.