Abolish Resale Tax

The Maharashtra Government has dealt a severe blow to IT business in the

state by increasing the resale tax from 0.2 percent to 0.5 percent and making it

applicable to goods that carry sales tax even less than four percent.

The majority of the IT business had escaped the dragnet of resale tax that

was introduced last year because it was made applicable to goods that carried

sales tax more than four percent. With the large chunk of IT goods attracting

less than four percent sales tax, the resellers had breathed a sigh of relief

then.

But that relief has now been taken away. A cash-starved Government which had

to find new ways and means to fill its coffers, found it convenient to increase

the 0.2 percent resale tax to 0.5 percent and made it applicable to goods which

carried sales tax even less than four percent.

What

this means is that the IT business which until now did not carry the burden of

resales tax, will now carry a minimum of 1.5 percent of it, affecting the

end-user adversely. This is a body-blow to a business that is run on wafer-thin

margins.

If the Maharashtra Government wants IT to thrive in the state, it has no

option but to abolish the resale tax on IT products forthwith. If the resale tax

is not withdrawn, resellers will start billing their products in other states

where taxes on IT products are much lower, since these states do not levy resale

tax and octroi.

The other adverse impact of the resale tax would be that sales without bills

will become rampant. And who will be the sufferer? The State Government of

course.

When margins are thinning out at each layer, every reseller would like to

think in terms of where and how to save every penny.

The resellers would be least concerned about filling Government coffers with

the resale tax.

Of course, taxmen would try to coax businessmen by asking them to pass on the

tax burden to end-users which is the last thing a reseller would like to do.

With competition being what it is, every reseller would not only like to keep

his current customers but also attract new customers. How would he do this if

gray market operators are in a position to sell IT hardware at a much lower rate

than him?

The Government need to take cognizance of the fact that the IT business is a

layered business unlike other businesses where hardly one or two tiers are

found. So, in the case of IT, if 0.5 resale tax has to be paid at every layer,

the total tax burden on the end-customer would deter him from going for IT.

The result would be that, both, the IT business as well as the Government

would suffer. In fact, given the bleak economic scenario, business would get

crippled. The very purpose of increasing the resale tax would be defeated

because end-users would either postpone their purchase decisions or buy from

gray market operators who do not pay taxes anyway.

Even as IT resellers and traders plan to meet the State Finance Minister

under the banner of Traders’ Association of Information Technology to do away

with the tax, the State Government in good faith need to abolish the resale tax

on IT products on its own and salvage its image as a IT-friendly state.

It is a known fact that states like Andhra Pradesh, Karnataka and Tamil Nadu

have taken a march over Maharashtra in the IT initiative. The resale tax should

not further erode the credibility of the state in IT business.