IT sale drops in its own capital

IT sale drops in its own capital
New Indian Express

BANGALORE: The sale of IT products has crashed in IT's own capital, Bangalore, and elsewhere in Karnataka, while the rest of India is reporting a robust growth.

In three months from August 2004, the IT software has reported a total sale of about Rs 41 crore, a little more than half of what the corresponding period in 2003 recorded.

One Bangalore-based software firm has begun reporting a monthly turnover of Rs 50 lakh, a far cry from its earlier Rs 50 crore.

The industry blames Karnataka's tax rates. The coalition government's maiden Budget in July 2004 raised the basic tax rate on computer, peripherals, software and components including networking products from 5 per cent to 12 per cent. The effective tax rate went up to 13.8 per cent, including the 15 pc infrastructure cess introduced on Feb 1 2004.

The sale of computers has also dipped. Though prices have crashed, the growth in turnover from computer sales is too small.

The industry has suffered, so also the IT economy. Badly hit is the Commercial Taxes Department, whose estimate of IT revenue has gone awry. The basic tax rate went up 2.75 times, but the rise in tax revenue is marginal: only 25 pc more in the said three months from software sales. Even this small growth took a heavy toll on IT business which dropped by Rs 30 crore.

The Manufacturers Association for Information Technology (MAIT) had predicted it. MAIT vice-president Venkat Kedlaya had warned the Government in July 2004 that the rise in tax would adversely impact IT usage in Karnataka, benefiting the states where tax rates are low.

The basic tax rate is 4 pc in Andhra Pradesh, Tamil Nadu and Maharashtra. Tamil Nadu levies an additional 5 pc cess. In Gujarat, software is exempt from tax while hardware is taxed at 4 pc. Pondicherry levies 4 pc on local sales, and export to other places is tax-exempt. So are sales from Noida.

Some tax analysts say it's Karnataka's tax revenue that has taken a big hit as some IT companies have found their own way of survival. These units, faced with low margins due to increased competition, are making best use of the technology. They `export' their software products to a low-tax state and sell them.

Even the special entry tax has not helped check diversion of IT trade. Many government departments are importing IT products from low-tax states because they are exempt from the special levy.