JAIPUR, INDIA: The ongoing issue of service tax on backend rebates and incentives has forced Rajasthan Computers' Traders Association (RCTA) to pull up their socks and take precautionary moves before it is too late.
Keeping in mind the upcoming probable situation of liquidity crunch due to tax deduction on incentives, RCTA is planning to approach the leading vendors in the first week of April to come out with a solution.
While discussing the possible ways to combat the situation, Raj Kumar Poonia, President, RCTA shared that vendors can help channel partners in this situation if they pay the backends and incentives as soon as the targets are achieved, as an upfront payment.
“Backends is a strong tool that supports the flow of liquidity among the channel partners. Most of the work is done through backend only. On an average, partners collect an amount of Rs 5-6 lakh every six months as backend and incentives. If government levies service tax at the rate of 12.5 percent, it would be very difficult for a partner to sustain in the market. Huge chunks of the collection would be paid as tax. Channel partners cannot take any action on this against the government but at least we can speak to the vendors including HP, Samsung, LG and Rashi Peripherals. If needed, we may speak to the government authorities at the state level.”
Poonia said that they are planning to speak to vendors after March 31. He added, “If the government has issued notice to the dealers in few regions, it will surely send it to every part of the country. Before the government sends any notice to channel partners in Jaipur, we need to take the requisite steps; however, it is a matter of wait and watch.”
Deepak Sharda, Secretary, RCTA remarked that during a slowdown, when the market is already facing liquidity crunch, such taxation would affect the cash availability among partners. “Right now we are educating the channel on this issue. Though, there is not much we could do in this regard but still we will make efforts that dealers are saved from paying heavy service tax,” he said.
Recently, the service tax department under central excise had charged notices on several dealers demanding for service tax on backends and incentives received by them since 2004.
Guidelines from RCTA
All affected dealers should immediately register their names and other relevant details with RCTA so that the same can be compiled and shared with Confed-ITA Task Committee
Write to your respective vendors demanding service tax on backends received since 2004
Consult your auditors and raise necessary debit notes. Include your suppliers and distributors for future litigations when needed