Tax row behind IT lobby - Govt spat

Tax row behind IT lobby - Govt spat

Vijay Times

Bangalore: The ongoing tussle between the Karnataka Government and the information technology-hitech industry lobby over the former's alleged negligence in improving the infrastructure of the City has more to it than what meets the eye.

Official sources point out that the IT-hitech lobby is aggrieved by the Government's action of levying 18.4 per cent entry tax on capital goods.

The industry is particularly sore with Deputy Chief Minister Siddaramaiah -- who holds the finance portfolio -- for targeting it by increasing the sales tax on capital goods from five per cent to 13.8 per cent, in the Budget.
The same has had a cascading effect on the cost factor, since the investment on capital goods is very high in the IT and electronic manufacturing industries. The industry worked

around the problem by importing all the required capital goods. Not one to be outfoxed, Siddaramaiah imposed a 18.4 per cent entry tax on all capital goods, with effect from October 1, thus hitting the hi-tech industries.
The production cost for these industries jumped by around 20 per cent as a result, making it difficult for them to do business in the State. Several of them postponed their expansion programmes and some others have gone in search of greener pastures, according to Bangalore Chamber of Industry and Commerce (BCIC) sources.

They told Vijay Times that the chamber had met Chief Minister Dharam Singh to discuss the issue. They were also in constant touch with the Industries Minister P G R Sindhia, but nothing favourable had come about as yet, they added.

The chamber is of the view that entry tax is nothing but octroi by another name and that Karnataka is the only state which levies it.
The 'tax raj' has resulted in harassment by officials at airports and railway stations for CEOs and other officials, the chamber sources add. "It is not possible to carry any identification or receipt of a laptop or a camera every time you travel", a senior travel company executive, T T Varadhan told Vijay Times.

The chamber plans to ask the Government to levy entry tax on service sectors like hotels, back office operation companies and banks like in other states, so that the burden on the hitech industry can be lessened.

"IT companies have to buy a minimum of 1,000 to 2,000 computers and other electronic accessories like routers and servers for setting up a software unit. The 18.5 per cent tax is an additional burden that kills the venture even before it is started", said an industry source.

The IT/BT-hitech lobby's anger over this is thus reflected in its targeting the Government for the poor infrastructure.

It may be recalled that these industries had been given a special status by the previous government because of their export earnings. They were making huge profits, due to this factor, as also the cheap labour available in the State.

Meanwhile, Maharashtra Governor S M Krishna's direct criticism of the Government over the issue and Chief Minister Dharam Singh countering it at a press meet in Delhi have added fuel to the fire.

Dharam's move to smoothen the ruffled feathers of the industry drew flak from JD(S) supremo Deve Gowda, who is opposed to meting out special treatment to the captains of the IT Industry.