IT industry seeks clarity on tax levies

IT industry seeks clarity on tax levies

New Delhi: The information technology industry is looking for a clarification on taxation changes when finance minister Pranab Mukherjee unveils the budget on 28 February.

The ambiguity in the current rules has to led to a situation such as the one at Chennai port. For the last two months, a consignment carrying software licences (expected to be worth upwards of Rs50 crore) has not been cleared by the customs department.

The consignment includes CDs that contain licences and encryption keys and belong to distributors such as Ingram Micro India Ltd and Redington (India) Ltd. The issue stems from a 21 December notification from the finance ministry revoking parts of its last budget on how packaged software should be taxed.

In last year’s budget, it had been stipulated that packaged software would be taxed in two parts. Excise or countervailing duty (CVD) would be levied on media (such as CDs) carrying the software programme while service tax would be applied on the licence.

This was welcomed by the industry, which had been grappling with a dual taxation issue as both service tax and excise/CVD were levied on packaged software.

But service tax can be levied only by retailers who have a turnover of Rs10 lakh or above.

“For small retailers it was a problem as in most cases their turnover is less than Rs10 lakh. So we had requested the finance ministry to levy tax on the maximum retail price," said Raju Bhatnagar, vice-president at technology lobby body Nasscom.

While the ministry released a notification to this effect on 21 December, it rescinded past ones, thereby rekindling the issue.

“There is almost Rs40-50 crore worth of inventory, which is seeking clearance at the Chennai port due to the issue and they involve major software firms such as Microsoft, Sun Microsystems, Norton, etc," said Ashwini K. Aggarwal, executive director of industry lobby Manufacturers Association of IT Industry (MAIT).

“While it is impacting the business of these firms, government revenues are also being hurt due to this," he said.

“It is like taking two steps backward to take one step forward," Bhatnagar said.

One of the distributors, who did not want to be identified, said that after the notification the customs department wants to levy customs duty on the licences as well. “It will lead to dual taxation as we will have to pay service tax as well on it," he said.

Industry bodies such as Nasscom and MAIT have been in dialogue with the finance ministry over the last couple of weeks, but the ministry is yet to resolve the issue. Government officials could not be reached as the finance ministry is quarantined ahead of the budget.

Imports through Mumbai port haven’t been affected, said the distributor cited above.