Sales tax increase boomerangs

Sales Tax Hike Hits Karnataka Hard
Financial Express

The Karnataka government lost almost Rs 6.5 crore in sales tax revenues for the month of August this year, because of the increase in the sales tax slab on PCs - from 5.75 per cent to 13.8 per cent in the state, according to a study conducted by the Manufacturers Association of Information Technology (Mait).

Based on inputs from the leading 10 national and regional distributors and vendors like Ingram Micro, Tech Pacific, Redington in July, Mait has calculated that the state government collections from the hardware industry would have amounted to Rs 2.98 crore at a rate of 5.75 per cent.

Based on the July 2004 sales, Mait projected that the state government would collect Rs 7.48 crore sales tax revenues from the hardware industry. Instead, the state could only manage to collect Rs 98 lakh. “If this trend continues, Karnataka would lose over Rs 50 crore in the next eight months (till March 2005),” warned director, Mait, Bangalore region, K S Nanda Kumar.

The discrepancy is occurring because companies instead of billing directly from Karnataka, are doing so from nearby Hosur in Tamil Nadu, which is just 30 km away from Bangalore city.

“Imposing a higher tax on hardware is burdening the common man. Today, a lot of PC buyers are home users. With an increase in the sales tax, retail sales have declined,” said general manager, Acer India, Arun Bhagat.

“The number of PCs sold in the state has come down by more than 50 per cent in the last 40-60 days. We are in the process of collecting information on the exact number of PCs sold in the state during August,” said secretary of the Association of Information Technology, R Sridhar.

“We have been urging the government to decrease the sales tax, but have had no response,” he said. Interestingly, it is not IT companies who pay sales tax on the purchase of computers. Most of them being EOUs, they import PCs duty free for their operations.

When contacted, the state IT secretary, Shankaralinge Gowda, maintained that it was “very difficult to say whether the state has lost sales tax revenues from hardware.” Each associ-ation had different numbers on the PC sales in the state, he said.

Sales Tax Forces WeP To Look Outside For New Facility

WeP Peripherals Ltd, formerly Wipro e-Peripherals Ltd is looking at locations outside Karnataka to set up its central warehouse facility.

According to the company, the decision was driven by the state government’s move to increase sales tax on the hardware industry from 5.75 per cent to 13.8 per cent.

WeP Peripherals CEO Ram Agarwal said that the company had seen over 50 per cent dip in its peripherals business in the last two months. “We are looking at expanding out of Karnataka for our business, if government doesn’t listen to us,” he said. “We have requested the government to reduce the sales tax on hardware in the state to support the industry. But nothing has come out of it so far,” Mr Agarwal said.

WeP Peripherals has two manufacturing facilities; one at Mysore producing dot matrix printers, line matrix printers and printer heads. The second plant in Hyderabad producing dot matrix printers for exports, and UPS products. Both factories have a combined capacity to manufacture 2,00,000 printers and 1,00,000 UPS per year. “Apart from this, we have central warehousing facility in Bangalore,” he said.

WeP Peripherals is one of the largest employee owned company in the country, providing IT peripherals products, IT peripherals solutions and printing services.