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Karnataka to cut tax on hardware

The state will no more just offer incentives, sources said. Taxes on computer hardware, reduced during the recent Union budget, is still too high for hardware manufacturers who work with wafer-thin margins.

Things are not helped by the presence of a grey market that often blithely ignores government levies.

"The state government's considering rationalisation of the tax structure to attract hardware manufacturers. It has to do it quickly as states like Andhra Pradesh are posing a threat to the it," a senior executive from a software company said.

Karnataka is underlining its commitment to the hardware industry by formulation of a new information technology policy to make the state an economic and efficient alternative to the competition.

The rationalisation of the tax structure is part of the plan.

Chief Minister J H Patel, along with senior executives from a few IT companies, will visit the US next week to extol the virtues of Karnataka as a home to silicon. But the state still faces stiff competition from nations like China, Malaysia and Taiwan.

Karnataka's high taxes had driven some companies to set up hardware units in nearby Pondicherry and Tamil Nadu. More competition comes from Andhra Pradesh, Kerala and Delhi. Both Wipro-Acer and HCL moved from the state to Pondicherry which had a tax structure more suited for such companies.

Besides taxes, cost of living is higher in Karnataka and hardware manufacturers have to overcome infrastructural hurdles too. The growth of software technology parks in other states has not helped Karnataka.

The new IT policy is also expected to suggest inclusion of better connectivity at schools and to clarify the state administration's computerisation policy. If manufacturers can cuts costs and make more profits while yet keeping prices low, the state will stand to benefit, sources said.

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