How the Budget Impacts Indian VADs

By Yogesh Gupta Mar 5th 2015
How the Budget Impacts Indian VADs
Increase in service tax, the existence of dual-tax regime and abolition of SAD are affecting VADs in more ways than one.
Technology vendors have been largely content with the announcements in the Union Budget 2015-2016 that will add impetus to the India ICT industry. 

The introduction of GST from 2016 was an important tax reform anticipated by the entire ecosystem of distributors, value added distributor (VADs) and channel partners. 

India’s leading tier-2 technology VADs–-who form an important link between technology vendors and channel partners--are largely positive about the budget though few issues remain unanswered.

“The confirmation that GST will be introduced from April 2016 will have a huge impact from next fiscal onwards for the entire IT ecosystem,” says Sriram S., CEO at iValue InfoSolutions.

While that’s good news, some VADs feel that increase in service tax is a big blow. “In the software business, we are already reeling under the dual tax regime of service tax and VAT. This rise will further burden customers,”says Vinod Kumar, MD, Satcom Infotech.

And, this will also lead to increased cost of living and other services, he adds.
 
Sriram feels that increase in service tax rates should have been ideally done along with the rollout of GST next year. “And there is still no clarity to avoid double taxation challenges of IT offerings (VAT and service tax),” he adds.

Satcom’s Kumar appreciates the proposal to reduce corporate tax over the next four years to 25 percent. Apart from that, mandatory PAN for property transactions over Rs 1 crore, the increased tax benefits for salaried people like increase in transport allowance, medical reimbursements, and national pension scheme are positive announcements, he says.
 
“Also, focus on start-ups and skills development to enhance employment opportunities is a good move by the government,” says Sriram. 
 
 
But the question really is: Will the Union Budget 2015 impact the channel ecosystem of VADs? “There will be no change in our channel strategy this fiscal due to the budget, as we continue to work more closely with the channel community,” says Ashok Kumar, MD and CEO, RAH Infotech.

Sriram of iValue InfoSolutions is not content with a few announcements as he says no reduction in personal income tax or enhancements in saving options are available.

“There is no reduction in 10 percent TDS rate, which is impacting cash flow significantly for non-service businesses,” he says.

On the other hand, the reduction in TDS rate on royalty to 10 percent is a welcome change says Kumar.

“But I did not like the Budget announcement of holding RBI accountable to keep inflation under check. That is the job of the government and the policy makers,” adds Kumar at RAH Infotech.


Yogesh Gupta is executive editor at ChannelWorld. You can contact him at yogesh_gupta@idgindia.com or follow @yogsyogi1

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