India's first national software channel association is born

The ongoing confusion about the imposition of service tax and value added tax
(VAT) on software products has had one positive outcome. It has led to the
formation of India's first channel association for software channel partners.
Called Indian Software Dealers Association (ISODA), the body will have an
executive council of seven people who will be spread across the country. These
are:

Chairman: Rajesh Kothari, Blue Chip Computers, Mumbai

President: Devesh Agarwal, Compusoft, Mumbai

Secretary: Harinder Singh Salwan, Tricom International, Mumbai

Secretary: Vipul Datta, Futuresoft, Delhi

Secretary: Sudarshan Ranga­nathan, Veeras Infotek, Chennai

Secretary: Hemant Chabria, Chabria Infotech, Kolkata

Treasurer: Gyanesh Kulkarni, Data Formatics, Mumbai

The initial joining fee is Rs 10,000 annually and Kothari informed that 20
partners have made this payment. People who sign up within this month will also
be recognized as founder members. Later, a decision will be taken on the
recurring annual fee to be charged from the coming year. “The reason we have
decided to charge an amount per member is because we need to build a good corpus
if we want to make represen­tations to the government and also take legal
recourse if necessary,” said Kothari.

It is estimated that there are 200 channel partners in the country who
predominantly sell software and most of them have an annual software sales
turnover of Rs 1 crore. ISODA will try to bring them under its fold to boost its
member strength.

But will a national association succeed? “Yes,” said an optimistic Kothari.
“The reason we decided to have a national entity is because if we have a
regional one then its total strength will be just 15 to 20 partners which will
not be taken seriously,” he said.

Besides this, most of the problems faced by software dealers are national in
nature. The latest issue plaguing this community is the deduction of tax
deducted at source (TDS) on the sale of software products. Said Kothari, “We
charge a corporate customer service tax and VAT whenever we raise a bill to him.
But when he pays us, he deducts 11 percent TDS.”

This can be a major business problem because the margin in software sales is
around three percent. If a customer deducts 11 percent, then the partner's cash
flow is affected, and after a few such transactions, he has a cash flow crunch.
Getting a refund from the IT department for the TDS takes around two years on an
average, which does not help matters either.

Another issue that has been affecting the software channel is confusion
whether octroi is liable on VAT or the other way around, but this problem is
more or less restricted to Maharashtra. Similarly, there is an anomaly when it
comes to customs duty charged on import of software products.

“Software has two classifi­cations according to the govern­ment-packed box
software or paper license. The box version attracts two percent customs whereas
paper licenses, which constitute 97 percent of our import business, is exempted
of customs duty,” informed Kothari.

He wants to educate the government that this dual classification is redundant
and it doesn't matter whether software is imported in box or paper, because
these are just different delivery models followed for a single product category.

There are other issues like the recent decision of the Directorate of Revenue
Intelligence (DRI) to pursue tax evasion cases against some software dealers,
which finally made a few of the community members decide to form ISODA because
they believed that it is easier to make a representation to the governmental
agencies as a unified body than as an independent voice.

The decision to form the association was taken a few weeks ago, and since
then the core team was involved in preparing the memorandum of the association
and getting it approved. This is expected to be complete by this weekend and the
body will be registered under the Indian Societies Act next week.

ISODA will also permit distributors like Ingram Micro, Redington India and
Sonata Software, as well as software vendors to be part of the association
though they will not be given any voting rights.