Karnataka govt hikes VAT rate on wide-range of IT products

Karnataka govt hikes VAT rate on wide-range of IT products
New Indian Express

BANGALORE: The State Government has silently imposed heavy taxes on a host of electronic items by deleting them from the list of IT products taxable at 4% VAT rate.

The move will jack up the prices of cellphones, multi-media speakers, and a wide range of telecommunication equipments including all kinds of telephones. These products are taxable at 12.5% VAT rate with effect from April 1.

The Government of India has classified these items as IT products so as to extend the benefit of reduced tax rates on them. They are treated as IT products in other states too and are taxed at 4% VAT rate.

The S M Krishna regime brought a number of IT products under 4% tax and even after the State's switch to VAT, they continued to be under 4%. When Siddaramaiah was Finance Minister, the government issued an exhaustive list of IT products with 30 broad classifications to be taxable at 4% VAT with effect from April 1, 2005. (See: FD 197 CSL 2005(7) dated 30.04.2005)

However, this year during the Budget exercise, the State Government revised the list. While doing so, it deleted some items and added two new ones - MP3 Player and computer printer ribbon. Thus, while the newly added items are taxable at 4% VAT, those deleted will attract VAT rate at 12.5%. (See FD 116 CSL 2006(9) dated 31.03.2006).

The rise in VAT rate will have its impact on IT and BPO sectors and in activities like software development. It will, however, not jack up the prices of computers as they continue to be taxable at 4%. This is because, even if any input taxable at 12.5% is used in the manufacture of computers, the difference between two taxes i.e., 8.5% is refunded by the Commercial Taxes department to the manufacturer.

Surprisingly, the Government has not informed the Legislature about these changes in tax rates, something that propriety demands.

The items to attract 12.5% VAT rate are: Microphones, multimedia speakers, headphones, telephone answering machines, walkie-talkie set, cordless handset, car telephone, transportable telephone, marine radio communication equipment, amateur radio equipment, cellular telephone, radio pagers, demodulators, electrical capacitors, fixed, variable & parts, electrical resistors, switches, connectors, relays for up to 5 amps, Data/graphic display tubes, permanent magnets and articles and electrical apparatus for line telephony or line telegraphy.

Some of the above items are said to be high-value ones and are used for software development and in call centres and BPO firms. Since most of them are bought for business use and not as inputs, many consumers may find it convenient to source them from neighbouring states.

That will only hit even the existing tax revenue from these products.

TO COST MORE

Microphones, multimedia speakers, headphones, telephone answering machines, walkie-talkie set, cordless handset, car telephone, transportable telephone, marine radio communication equipment, amateur radio equipment, cellular telephone, radio pagers, demodulators, electrical capacitors, (fixed, variable & parts), electrical resistors, switches, connectors, Data/graphic display tubes, permanent magnets and articles and electrical apparatus for line telephony or line telegraphy.

TO COST LESS

MP3 Player and computer printer ribbon

MAIT wants VAT rate restored

The Manufacturers Association of Information Technology (MAIT) has urged the State Government to restore the VAT rate on products deleted from the IT list to 4%.

“Karnataka has been in the forefront of IT, and the IT industry is growing at a fast pace. After the Budget, we wrote to the Government requesting for an expanded list of IT products.

We hope they will restore the 4% VAT rate as the government has always been supportive of us,” MAIT executive director Vinnie Mehta told the this website’s newspaper.