__p Many a times things well-intentioned have an uncanny way of going wrong. And in the process the remedy proves worse than the disease.
p____p Take the case, for instance, of India’s Silicon Valley state. Till recently the undisputed number one information technology state of India, Karnataka is fast slipping from its pedestal.
p____p With the recent hike in sales tax on computers, IT products and services to 13.8 percent – while the same in its neighboring states hovers around 4 percent – computer dealers in the state have been badly impacted. To compound matters further, in a move intended to curb the influx of goods from the neighboring states, the government introduced a special entry tax of 13.8 percent on computer peripherals and software with effect from October 1.
p____p A laudable step at one level, as it aims to provide a protective shield to its IT dealers from unscrupulous dealers, it is anything but beneficial for the state’s dealers. In fact, it is bound to prove counterproductive – both for the resellers and the state government.
p____p Rather than protect the resellers’ business, the entry tax has come as a booster for the gray marketers as they are now enjoying an uninterrupted field day, what with the hike in sales tax making IT products once again unaffordable for the common man. The resultant drop in sales will also deprive the state exchequer of significant amount of revenue. Ironically, the enhanced ST was supposed to bolster the state’s kitty.
p____p What befuddles the mind is that at a time when global trade barriers are coming down, ushering in a free-trade market, the state government is resorting to entry barriers. This when the need of the hour is to rationalize the ST, bringing it on par with those of the neighboring states, which would provide a level-playing field for the state’s harried dealers. This will also help to keep the gray market in check.
p____p Hopefully, the government will realize its folly sooner rather than later and move forward to streamline its IT policy, in consultation with the industry. Unilateralism seldom pays – bilateralism is the path to progress.