State government´s notice creates furor in Karnataka IT market

There is a major furor in the Karnataka IT market following State government's recent directive to the resellers asking them to pay resale tax (of 1.5%) and turnover tax (1%) from 1997. Last week, a section of resellers in the state capital got notice from the sales tax department asking them to pay resale tax and turnover tax within seven days of receiving the notice, which caught them unaware and the news came as a shock and surprise to many in business. The issue gained further momentum when the department served the notice to many resellers two days back, including places such as Hubli, Mysore, Belgaum and Mangalore. According to market sources, more than 75 notices were issued to resellers in the IT hub SP Road alone, in the last couple of days and the channel community in unison claims there is no resale or turnover tax in IT business and was stated by the state government itself.



"Where would we go to pay such a huge sum of tax levied on us since 1997? Earlier, the government clarified there is no resale or turnover tax for IT and now, they are issuing notice to resellers to pay it. It is quite absurd on the government's part to change its stand every now and then, and with the way things are going in Karnataka, I am sure the government is not keen on promoting IT in the state," said an agitated reseller who wished anonymity.



"Karnataka is synonymous with tax issues and IT business is taking the worst hit in the recent times. First, came the tax issue on networking products and subsequently the government decided to hike the taxes steeply. Now, the government is touching up on the resale and turnover tax issue. If the government is concerned about revenues, it should not take shortcuts and penalize the channel community. The government is trying to raise several crores of rupees through this drive," said another leading reseller from the market.



"It is quite tough to make the officials (sales tax) understand and differentiate between peripherals and components. Given their level of knowledge on IT products and technology, we are sure that we cannot win the case against them based on their classifications of IT products for tax purpose. It is the plight of the industry to have such officials on the board," pointed out another leading reseller.



Meanwhile, resellers are getting together and planning to engage a senior counsel at High Court to fight their case. "It is best to go through senior advocates who can present our case well and can win case in our favor. There are lots of legal issues involved in this and court can only settle the matter."



Confirming the news, Belgaum-based resellers said, "It is high time the resellers got together and protested against the government for their erratic behavior. This time, I believe resellers will stand united and fight till they get a favorable reply from the government."



Association for Information Technology (AIT), the leading organization for channels, is meeting today evening to discuss the issue and finalize their legal counsel to fight the case. "We are talking to several leading lawyers in the State and today, we will finalize the name after consulting with our key members. It is a burning issue which needs to be addressed immediately," said an office bearer of AIT. Meanwhile, the resellers are also planning to go on an indefinite strike to protest the government's move.



"What was the government doing all these years, if they want to assess from 1997? We all have submitted our accounts long back and paid tax accordingly, including the income tax to central government. Now, if the state government wants to go back to as early as 1997 accounts, how is it possible," questioned another leading reseller.