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The recent decision by the government to impose Service Tax on the licenses of all packaged software will result in an increase in the prices of software. This decision will also have an adverse effect on the business of the channel partners.
Formerly, software which only attracted VAT will now also attract service tax. This is mainly because the government has classified software as a service.
According to channels, if both the Service Tax and VAT is levied on software, then they will have no other choice but to increase the prices of the software. Sudarshan Ranganathan, CEO, Veeras Infotech, said, “At present, software is being considered as sales in form of a service. Hence, it is attracting a service tax of 12.36 percent and a 4 percent VAT as well.” However, there is a dispute among the channel partners on whether software can be classified as a service or a sale.
Paresh Shah, CEO, P H Tecknow, said, “We often receive a lot of complaints from our customers on why we are charging both the service tax and VAT on the products. But we have no other choice but to do this. If we don’t charge service tax, then we will have to pay it from our own pockets and this will affect the cash flow of our business. As it is we have to pay a TDS and then if we have to pay the service tax too, we would start running losses and would not be able to do our business anymore.”
Ranganathan also said, “After we increase the prices, another problem that we would face is the fall in demand for the products. There has already been a built up of orders till 31st of May and there has been an impact of 13 percent from May 31st to June 1st. Rise in the prices of software may also lead to an increase in the piracy of software too. The channel partners are now trying to decide among themselves on what would our next step be. But the vendors should also try and cut the prices on the products.” |