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Tax issues may delay
October, 21st 2009

The tempo is building for the launch of Windows 7 on October 22 globally. But in India, there is a different hubbub. The ongoing issue of the applicable levy on packaged software could cast a cloud on the immediate off-the-shelf retail availability of the new Operating System in the country.

Over the past few weeks or so, packaged software shipments of various companies have been piling up at ports, pending clearance, because of the purported confusion over tax levy. Industry watchers say that the issue would not impact the OEM availability PCs will still ship the Windows 7 on the launch date but it could mean a delay in the new OS hitting the retail counters, unless a clarification is issued.

The problem will also not affect large enterprises that have an ongoing relationship with Microsoft, as these customers download the software for implementation. Sources pointed out that the retail pack purchases constituted a small fraction of the overall sales.

Budget clarification

At the heart of the issue is the change that the recent Budget brought about, to address the long-standing issue of double taxation of packaged software. The Budget addressed the industrys concerns over the double taxation issue by clarifying that the right to use (licence) component of the packaged software will attract service tax while the value of the media itself (the CD on which it is loaded) will attract a Counterveiling duty (CVD). Prior to that, the packaged software saw certain instances of double taxation (service tax and CVD).

But although the Union Budget cleared the air around dual taxation of packaged software, industry watchers claim that confusion still prevails in Customs field formations with regard to the new dispensation.

There is no standard term within the industry to imply right to use. Some players call it licence, some royalty, and some right to use and that is creating confusion when the product is shipped. The problem is being compounded by the fact that the importers are being asked for a physical proof of licence for the software. For products such as packaged software, the licence is the software itselfIt does not involve a paper licence, said an industry official.

Shipment woes

The industry said that it also facing problems in shipment as there were queries over the value of the media and the varying proportion of the value assigned to licence and the media (on invoices) by different software companies.

The situation is the same for all packaged software companies, including Adobe, Microsoft and Symantec, among others.

An official of a software company said this confusion at the field offices has held up shipments across the industry for close to six weeks now. It is a price-sensitive market with a high degree of piracy, and the software importer (in this case the distributor or reseller) does not want to take the risk of double taxation again, as he will have to pass the incremental cost to consumers, the industry source said.

When contacted, a Microsoft spokesperson reiterated that the product will be available in retail through new OEM machines and that the company expects the off-the-shelf packs to be available shortly. Adobe could not be reached for comment.

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