Software 'Tax'onomy

India is vast country with a number
of states each not just culturally but even politically substantially
different from each other. Thanks to the federal model, each state
enjoys significant political autonomy; while there are important
advantages of this model, there are certain drawbacks too, especially
in the matter of different taxation structures. The fact that India
has so many varying tax regimes has claimed high profile victim in
the local software market in recent times. For example, the taxation
policy in Noida, which comes under Uttar Pradesh may not be the same
with Gurgaon of Haryana, distanced a few miles from Noida. The
taxation policy in Cuddalore, Tamil Nadu may not be the same in
Karaikal which is a part of Puducherry, a Union Territory.

SOFTWARE: SERVICE OR PRODUCT?

The other bitter truth on the
taxation side is the way it is perceived by the respective state
governments and the central government. When one calls software a
product, the other calls it a service. This has led to confusion
where those who are into the business themselves (the dealers in
software) do not know whether software comes under the ambit of
product or service. This was the key point raised by Alok Gupta,
president, Indian Software and Dealers Association (ISODA) during the
SP Summit in Colombo. Sudarshan Ranganathan, VP, ISODA was more
sarcastic, “Taxation in India is like a hang-over. It is all fun
but if you are not aware of it, you will feel bad,” said
Ranganathan. Terming VAT as the first challenge, he explained that
the partners are being victimized and compelled by the government to
pay multiple taxes. The practice is much similar, he explained, to
that of how the music industry works. If the music is seen as the
compact disk, it can be called as a multimedia product, however, on
the rights perspective, music is a service.

The common grouse for the partners
was the uncertainty and incomprehensible policies in defining the
software services either as a service or a product. Chetan Shah of
Xpress Computers added, “The practical point of view is that there
is no clarity within the government on issue with tax and customers.
It is a big pain for us while the state government says it is a
product and the central government terming it a service creates
confusing and chaos.” If there is only one tax regime, then it will
immensely help the partners. Rajesh Kothari of Blue Chip, Mumbai said
that software, as an industry, has progressed on its own. “In
course of time, government departments started thinking that we are
losing money from software industry. Every department in the center
and state wanted to increase revenue. The need of the hour is to make
clear under which category software comes,” said Kothari. On the
sidelights of the discussion, Kothari further added, “We demand
taxation on packaged software to be simple, unambiguous, uniform, and
reasonable. Also, taxation should be truly in line with the letter
and spirit of Government of India's commitment to World Trade
Organization (WTO) in 1996 that India will reduce customs duty trade
barrier to zero for all IT items by 2002.”

Anil Kumar TV of Dhanush Infosol
believes that the central government is not consulting all chapters
of the IT industry but is carried away by few trendsetters and
opinion makers in the ministry and private bodies. “IT industry has
fragmented into development, export, BPO, ITeS, service, system
integration and hardware. But the government is not taking inputs
from all the sections of the industry,” he further added. Kolkata
based Manoj Rathi, Diamond Infotech too, feels the same. “The
governments should bring a unanimous tax policy in favor of the
channel community,” said Rathi.

STAND ON YOUR OWN LEGS

There was another grouse prevalent
amongst most of the software dealers that Nasscom has not taken a
strong stance regarding software taxation. That particularly from a
body known for its active lobbying powers with the government seemed
to be causing discontent amongst many software dealers. However,
Ibrahim Ahmed, Group Editor, CyberMedia felt that it makes little
sense for software dealers to depend on Nasscom and expect them to
help in making the government see light. The fact that no solution
provider is a member of Nasscom and would prevent any wholehearted
support from India's premier IT association. “And since ISODA is
trying to create its own space independent of Nasscom, they cannot
expect to piggy bank on Nasscom now to help with the government. It
is your battle and you have to fight it out,” added Ahmed. The need
of the hour is a strong body which can lobby for whole IT industry
and take up all the issues to the IT ministry. There are state-level
associations in every state and there are plans in the pipeline to
integrate all the state bodies to one single body. When partners from
different regions of the country raise voice unani- To read more
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mously, the government will have no other option other than lending
patient hearing to issues concerning partners. In fact, post the SP
Summit, the ISODA delegation recently met the finance minister with
the request to at least, reduce the TDS in software trading.