Sales Tax Hike Hits Karnataka Hard

Bangalore | Updated: Sep 30 2004, 05:30am hrs
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.