The winds of change seem to be setting in with the beginning of the new calendar year and the industry is rife with anticipation as the UPA government gets ready to unveil the budget for 2007-08.
Presenting his last budget, Union Finance Minister P Chidambaram had quoted excerpts from Swami Vivekananda’s speeches and said that those vessels whose sails were unfurled could catch the wind and go forward on their way, but those that had their sails furled would not catch the wind. The key question in all discussions, this year too, remains as to whether Chidambaram will be able to propel the IT industry in the right direction or hold its sails tight.
The annual budget is more than a customary ritual as it is supposed to propound not only the expenditures and revenue earning statistical details of the government, but also underline the policy framework for various sectors, thus drawing a roadmap for the drivers of national economy.
Budget 2006-07 had little in it for the industry to cheer about. Industry bodies and resellers alike expressed concern that the IT penetration would face hindrance as the prices of computers were expected to rise by 5-6 percent due to the 12 percent excise duty levied on personal computers. Similarly, the 8 percent excise duty on packaged software sold also had the industry up in arms as the move was expected only to drive up piracy rates. There were also fears that the smaller domestic software developers would be hit hard.
On the positive side, there was MAIT’s Executive Director Vinnie Mehta welcoming the budget saying that it would give a shot in the arm to manufacturers as imposition of 12 percent excise duty will establish a seamless CENVAT chain for the computer manufacturing industry.
All this is history and why are we turning the clock back? Now, all these issues are all the more reason for everyone in the industry to keep their fingers crossed over the upcoming budget and the new financial policy.
The phase-out process of Central Sales Tax has been revived again from the backburner with the Empowered Committee of the state Finance Ministers putting its weight behind slashing CST to 3 percent. Channel partners have reacted along expected lines. While phasing out CST will result in lifting one of the biggest growth deterrents, allowing it to continue would still deprive them of the benefit of VAT.
But pending this and the absence of a uniform VAT is already an impediment to the growth of the industry with resellers complaining “impasse” which has led to disruption of IT trade.
The states of Karnataka, Andhra Pradsh, Delhi, West Bengal, Haryana, Punjab, Chandigarh, Jharkhand, Goa and Kerala are expected to levy VAT based on the newly evolved Harmonised System of Nomenclature (HSN). Under this, taxes for certain components and equipment including IT software could go up to 12.5 percent.
Interestingly, as few states are barred from HSN, the VAT rates for the same product would vary from state to state. It will not only create an imbalance in the trade, but also defeat the very purpose of VAT. Obviously, Union Finance Minister Chidambaram has to take up the cudgel in explaining the rationale behind such a policy framework.
Under the CST Act, the tax is levied at a single point while under the VAT system the retailers are not subject to tax except for the retail tax.
Another issue being debated in the industry is the probability of lowering excise duty on IT hardware and electronics from 16 percent to 8 percent. The Union IT Ministry led by Dayanidhi Maran is reportedly charting out a draft to be forwarded to the Finance Ministry for immediate consideration in the budget.
Industry is also expecting a semiconductor policy, which the cabinet has already approved in principle and perhaps final touches will be given by the time the budget is presented.
Now to expect all issues to be addressed in the new fiscal year’s budget is being impractical. The moot point is that practicable is what happens everyday or for that every budget; and not necessarily what ought to happen. Thus, the ball is in the court of Chidambaram, also known among admirers as PC. He has to take the final call – either to make his budget a run-of-the-mill or a groundbreaking one.