The blue-eyed baby of India Inc — the software sector — is now steeling itself for a sales tax regime. Following a Supreme Court verdict, states now have the option to levy sales tax on software. This comes days after the sector moved ahead from the Bush-Kerry-outsourcing debate.Delivering its judgement to a petition filed by Tata Consultancy Services (TCS) in 2001, SC has ruled that some kinds of software packages are sales-taxable. As things stand, software is not considered a product and, therefore, it has not been taxed in India.Nasscom President Kiran Karnik said if it applies to ‘‘off the shelf’’ software, ‘‘It may in the immediate term impact the price paid by users; and this could affect PC penetration and give an impetus to pirated software’’. The applicability of sales tax on software has been furiously debated before. TCS’ 2001 appeal to SC was against an Andhra Pradesh High Court decision that off-the-shelf software packages were ‘‘goods’’ and would fall under the state’s sales taxes. The AP Court had exempt customised software, not considering them ‘‘goods.’’Sector watchers were upset over the decision. ‘‘This will have a very regressive outcome and curb software growth,’’ said NCAER principal economist R. Venkatesan. ‘‘Seventy-five to 80 per cent of software is exported, if states apply sales tax, it will lead to loss of India’s comfortable position globally and local price hikes.’’Besides, the industry is struggling over why sales tax should grow teeth while VAT cover for all goods and services is in the works. ‘‘We are aware of the move to integrate taxes on all goods and services and the movement towards VAT. In the long term, the industry will not be affected by this judgment,’’ explained Karnik.Even analysts confirmed that SC was only being logical and technically correct under present law, even though businesses would suffer and go against international trends.‘‘India is not a leader in creating software products, so additional local taxes will harm. To raise revenues, states must tax liquor or cigarettes, or impose user charges on utilities, Venkatesan added. Experts said SC’s decision rested upon whether software was an intangible intellectual property or a commodity.
