Packaged software for retail sales has now been brought under the Maximum Retail Price (MRP)-based excise levy. Simultaneously, the Centre has allowed 15 per cent abatement for calculation of excise duty on such software. The abatement is being given to cover the margins in the distribution chain, but domestic software makers say the quantum of abatement is “too low”. Till date, excise duty was levied on packaged software on the basis of transaction value (value at which producer sold it to the distributor) at the point of manufacture. Accounting software maker Tally Solutions anticipates a higher excise duty outgo on account of the changed regime, but says that the company will not pass on the added cost to the consumers.
The changed excise regime for packaged software will have implications for imported software too as the countervailing duty will now be levied on MRP, building in the 15 per cent abatement. There is no basic customs duty on imported software. Post the change in the basis of excise levy, the Centre has also accorded service tax exemption on all packaged software where excise duty has been paid on MRP basis. Also, there will now be no service tax levy on imported packaged software where countervailing duty has been paid. This will set to rest the confusion caused at the ground level by the Centre's move in 2008 to levy service tax on “transfer of right to use software”, tax experts said. Prior to the 2008 move, all imported packaged software attracted only countervailing duty of 10.3 per cent. After the levy of service tax, the imported software attracted both countervailing duty and service tax, placing higher tax burden on the software industry. Welcoming the Finance Ministry's latest move, Mr Bharat Goenka, Managing Director, Tally Solutions said that on a positive note the Government has made a clear statement that packaged software is ‘goods' and ‘not services'. “This dramatically simplifies things, especially for the trading channels of packaged software,” he said. However, the percentage of abatement is “unfair” and should have been 30 per cent, he asserts.
Another industry observer pointed out that the incidence of taxes such as VAT and CST in itself came to almost 7-10 per cent and therefore 15 per cent abatement does not fully take into account the dealer margins. “Apart from 10 per cent or so tax, at least 15 per cent dealer margins need to be taken into account and hence the demand for 30 per cent abatement is justified”, the industry insider said.
Relief on retail sales
With the service tax exemption being provided in cases where CVD/ excise duty is paid on MRP basis, there will be relief for distributors/ retailers from service tax compliances, Mr Pratik Jain, Executive Director, KPMG pointed out. Even as there was relief on retail sales of packaged software, Mr Jain highlighted that there is now uncertainty on the tax regime for institutional or industry sales of packaged software. This is because the Government has now withdrawn certain earlier notifications on the same