Karnataka: Nets software for taxes - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Karnataka: Nets software for taxes

Mar 27, 2001

In the budget proposals presented to the state assembly on the 26th of March the Karnataka government has imposed a 4% sales tax on computer software, including programming, providing and leasing of computer software. Therefore, the tax is not only applicable to companies developing software but also those who are offering services in the Application Service Provider Model (ASP model). The budget has proposed an annual tax of Rs 2,500 on mobile phones service, Internet service, Internet cafes, information kiosks, and e-commerce. The government plans to raise an additional Rs 2.8 bn by bringing the new economy businesses under the tax net. A tax of a similar nature was in existence four years ago but the Karnataka government was persuaded to remove the tax. The government has brought this tax back in a sudden move to make ends meet. According to the chief minister Mr. S. M. Krishna said while the state was not facing a financial crisis, its "financial position is a cause for concern”. This could be interpreted as the state was on the brink of a financial crisis. The committed expenditures on interest payments, salaries and pensions account for 60% of revenue receipts. Therefore, the government instead of taking tough steps like reducing expenditure has found the easy way out.

The IT industry is puzzled as to how an mechanism is going to be imposed to determine the taxable income for corporates as software does not have to be distributed physically. It can be downloaded from the Internet. Sales tax can only be imposed on good delivered from the state. There is a going to be a lot of ambiguity, which not doubt will create further complications.

It more than evident that the worst affected are going to be the smaller business like Internet café owners and smaller software companies that address local markets and businesses. This would lead to harassment of smaller business. These bodies do not have much of a representation and they would hardly be able to put up a fight against the government. But help is at hand Nasscom has taken up the cause and will continue to lobby for the removal of this tax.

Major software companies located in Banglore
Company % Domestic
Wipro 52%
Infosys 1%
Satyam 2%
Digital 1%
Mphasis BFL 1%
Tata Infotech 48%
PSI 30%

As for the large software corporates based in Bangalore their major source of income is exports and they have development centres in other parts of the country as well. Therefore, they will not feel any tangible impact.

It would be very interesting to note how the government goes around implementing its tax collection drive. While the industry is rather surprised, in the neighbouring state of Andhra Pradhesh, Mr Chandra Babu Naidu, who has been giving Karantaka a run for its money, might have the last laugh. He has another song to woo software companies to “Cyberabad”.

Equitymaster requests your view! Post a comment on "Karnataka: Nets software for taxes". Click here!


More Views on News

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

4 Indian Companies in the Exploding Drone Market (Views On News)

Sep 1, 2021

The futuristic drone industry in India holds immense promise now that the government has come out with new rules.

More Views on News

Most Popular

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

Nov 15, 2021

This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Nov 26, 2021 (Close)