IT dealers observe one-day bandh in K'taka

Dealers of IT hardware and software in Karnataka observed a day's bandh in protest against the proposed hike in sales tax on computers, IT products and software services in the state Budget for the current fiscal.

While nearly 3,000 dealers of IT products and services across Karnataka observed a day-long bandh on Wednesday, the Association of Information Technology (AIT) in Karnataka submitted a memorandum to state chief minister N Dharam Singh and deputy chief minister S Siddaramaiah to withdraw the proposed tax hike.

The key proposals in the state Budget include a 140 per cent increase in sales tax to 12 per cent from the existing five per cent on computers, IT products and software services, seven per cent hike on computer software, including works contract of programming, hardware, peripherals and cleaning kits, three per cent increase from the existing 5 per cent on computer consumables and from 13 per cent to 16 per cent on electronic goods and accessories.

"The proposed tax hike will make Karnataka the highest taxed state in the country for the IT industry, including hardware and software sectors," said Dhananjay Collur, president of AIT.

Collur said that the domestic IT service providers will be the worst hit by the tax hike as they would have to cough up a cumulative tax of 13.8 per cent on services provided to clients instead of 5.75 per cent at present.

According to the association, "It is a well known fact that home PC penetration is the key to IT revolution. When Karnataka sales tax was brought down to 0.25 per cent, the home buying jumped up by about 175 per cent. Under the new tax structure, the price of an assembled machine will go up by about 9 per cent, a national brand computer by about 18 per cent and an MNC brand by about 12 per cent. Home PC buying is going to come down drastically under the new tax structure."

Dealers also feel that this will not only expand the grey market but also redirect business to other states.

"A four per cent sales tax will make us to be on par with our counterparts in Andhra Pradesh, Tamil Nadu and Kerala. The state government should retain at the current level instead of the proposed 3-7 per cent. If the hike is effected, the state exchequer will stand to lose out as it will lead to not only the expansion of the grey market, but also force IT sellers to start billing from Ahmedabad to avail of the zero per cent duty in Gujarat," Collur said.