The local IT market, off lately, is having problems with the sales tax levied on networking products. The issue started a couple of months back when two leading MNC distributors decided to charge a sales tax of 10.5% on networking products, instead of the earlier rate of 4.2%. It had a ripple effect in the market, with other vendors charging the channel 10.5% sales tax.
However, at the same time, some companies were unaware of the issue and continued to charge 4.2%. This has led to confusion among partners, as many are unaware if the sales department issued notification of a sales tax increase in the Gazette or a government order.
The channel is accusing major distribution houses for spoiling the market by raising taxes without any communication from the concerned department. “This year, the state government has maintained a status quo of last year, as it was preparing to enter the VAT regime. According to the last year’s table of information, only passive components such as cables attracted 10.5% sales tax while other networking products had only 4.2%. Now, the players themselves are inviting trouble by changing this tax structure all of a sudden,” informs a leading networking solution provider in the city.
However, no doubt, there is trouble awaiting the resellers, if the 10.5% sales tax comes into effect for all networking products. Many companies fear they have to pay the difference between 10.5% and 4.2%, which is 6.3% for all the products sold from last year.
There are reports that only MNC networking products attract 10.5% and domestic brands will continue to enjoy the same 4.2% sales tax. “There is no clear classification of products and their tax structure, and this has been a regular problem with these taxes. Already, the IT business is operating on wafer-thin margins and issues like these will only affect the trade and the interest of resellers,” explains a Coimbatore-based networking solutions reseller. “The State government should keep IT business more competitive with neighboring states, otherwise we will lose out business to the latter who charge only 4% sales tax,” he adds.
On the other hand, an official from a leading national brand says, “We are billing only with 4.2% sales tax and this has not changed. In fact, we are not aware of this issue and it is news to us.”