Computer hardware industry wants tax clarifications

The Indian IT hardware industry has had a steady growth over the last few years. As per NASSCOM, the Indian hardware industry had revenues of $12 billion in FY2008, which is expected to be $12.1 billion for FY09 as a result of the impact of the current slowdown.

The hardware industry has been boosted with the penetration of the Internet increasing, which has meant that sales in non-metros is growing faster than metros. The number of active Internet entities has increased to 76.1 lakh in September 2008, up 18 per cent over last period.

With this, the number of Internet users has exceeded 54 million in the country.

Internet penetration in the top 22 cities was 44 per cent among businesses and 22 per cent among households.

Industry expectations

Currently, service tax is at 10 per cent whereas the excise duty/CVD is at 8 per cent. The industry is recommending that the service tax rate be aligned with the excise duty/CVD rate.

All IT products and components imported are subject to special additional duty of 4 per cent. The whole idea behind levying SAD was to align it with the CST being charged on domestic-manufactured products. With CST being phased out, the industry is recommending phasing out of SAD.

The industry is recommending the rate of abatement be increased to 35 per cent from the current 20 per cent. IT products like notebooks, printers, etc, are taxed on MRP and abatement is provided while computing duty to neutralise the effect of local taxes and channel margins.

The industry is recommending clarity on taxing of packaged and customised software. There is confusion regarding the levy of duty and service tax on software products.

Analyst expectations

The IT hardware industry has been marred by duplication of levy of duty, with both duty and service tax being levied. Clarity on the levy of taxes would provide relief to the industry.

The government ensures a seamless CENVAT IT manufacturing value chain. The industry wants that inputs/components should at no stage be at lower excise duty compared to the output/finished products.

This would mean that the companies would be able to claim higher CENVAT credit for the inputs.

Companies to watch

HCL Infosystems

Outlook

The economy is expected to have a slower growth going forward than that of the last few years, which would impact the demand for computer hardware industry.

However, the government can fill the gap somewhat with higher impetus on automation through higher funding of e-governance projects.

Any rationalisation and/or clarity on levy of taxes would bring relief to the industry.

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