Packaged software tax riddle: Microsoft wants excise duty on it

Software giant Microsoft's representatives will soon meet Finance Ministry officials trying to persuade them to impose excise or countervailing duty instead of service tax on packaged software.

The government had recently said that packaged software makers would be required to pay service tax and not central excise (or countervailing duty in case of imported software) to avoid they being taxed both.

This had happened after a series of representations from the packaged software industry and discussions within the Finance Ministry.

"Microsoft is again coming to us with a request to do away with service tax on the packaged software and charge the central excise or countervailing duty. They say they have a genuine problem," a senior Finance Ministry official said.

When contacted, Microsoft officials denied any such development from the company's side.

The rule to charge service tax only, the official said, had been implemented through a notification.

The packaged software industry had been reeling under the pressure of rising cost partly led by being taxed twice — service tax as a service and then excise duty as a commodity.

The government, like the industry, was of the view that there should be only one union tax levied on a good or service, the official said.

However, when software is downloaded, it attracts service tax as downloading is treated as a service. Later, it faced a duty when a licence for the software is taken as a commodity.

Packaged software refers to a bunch of software offered to various PC marketing companies to come pre-loaded on branded computers.

The announcement to levy only service tax on packaged software and exempt it from 8 per cent excise and countervailing duty was announced by Finance Minister Pranab Mukherjee in his Budget speech.

There is also an issue with the software industry regarding the levy of VAT on the product as it is now now considered a service. However, VAT imposed on goods comes under the purview of states.