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With VAT regime barely a month away, DQ Channels decided to conduct a snap
poll across 12 major IT associations in 11 cities to check the VAT Readiness
Index (VRI) of partners. While an index between 9 and 10 would have implied a
state of complete readiness, poll results indicate a national VRI of just 6.5.
This despite the fact that partners all across have welcomed the VAT system.
April 1st is generally celebrated as the Fools' day. While many look
forward to it for playing pranks, others are caught unaware and end up becoming
the subject of these pranks. But April 1st of 2005 is going to be a special day
for the Indian IT channels. A day that they have been waiting for quite some
time (couple of years, in fact). On this day, the value-added tax (VAT) regime
is slated to come into effect. What is the co-relation between fools' day and
VAT regime, you may ask. Very simple: While majority of the partners in country
are waiting for VAT with great enthusiasm, they are equally clueless on how the
implementation of VAT will happen and the various nitty-gritty that they need to
come to terms with.
DQ Channels hence decided to conduct a snap-poll across 12 leading
associations in the country. The objective of this poll was not only to feel the
channel pulse on a very critical issue like VAT but to also find out the VAT
Readiness Index (VRI) of the channel members which each of these 12 associations
across 11 cities represent (See Box: Methodology for more details).
And does it come as a surprise that the national VRI stands at a low 6.5,
where an index of 10 implies a state of complete readiness? Not really, if you
put things in perspective, specially the inaction on part of central government
to create adequate awareness on the subject. The best it has done so far is come
out with a white paper on the subject. But beyond that, what different clauses
mean, what its implications are going to be on the IT traders, is left to
speculation. Also the government is yet to authorize or certify organizations
and relevant people who can offer clarification on the issue.
On a city-to-city comparison, while Baroda and Chennai look least prepared to
embrace VAT, cities like Mumbai, Ahmedabad and Coimbatore are well-equipped.
(see Graph 1)
Though various charts speak volumes on the state of affairs in various cities-
just a month before VAT gets rolled out, it is interesting to note the high
indices in 'benefits to the channel' vis-à-vis very low indices on 'clarity
related to VAT's implementation' charts (see Graph 2 and 3).
Most of the associations that Channels India spoke to admitted that VAT will
go a long way in improving the health of channel business by streamlining
accounting processes, discouraging malpractices, and above all, bringing
uniformity in the tax structure. But at the same time, they were extremely
critical of the fact that the government till date has not done anything to
create awareness among the trader community on the subject except coming out
with a white paper.
Many associations also complained about the lack of communication on whether
other taxes like octroi (in certain cities) and central sales tax (CST) will
remain and for how long.
Associations in smaller cities like Baroda are faced with a more realistic
problem. 50% of its members still have a manual accounting system, while a VAT
implementation will make it essential for them to have everything automated.
Another crucial aspect that got reflected in the survey is the VAT
compatibility of accounting systems/processes. With the exception of Mumbai, not
one city looks geared up as far as making accounting systems VAT-compatible, is
concerned (See Graph 6). In case of Mumbai, majority of partners have a
VAT-compatible system in place due to a brief roll-out of VAT that happened a
couple of years ago in Maharashtra.
Given the fact that these 11 cities contribute to over 75% of IT sales in the
country, a reasonably low VRI is a cause for concern. While partners and their
respective associations are hoping that things will move quickly over the next
one month-both from their as well as government's side, one could only hope
that the entire exercise of a much-awaited tax reform doesn't end up being a
'practical joke' on April 1st, 2005.
GOLDIE
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