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Homepage: A taxing problem

Homepage: A taxing problem

Over the next year or so we'll hear some of the old debates about just what software is, especially as it pertains to taxability. This time the Government will presumably get its way and put its GST on everything to do with IT, and that includes software. Those of us who have been in the industry for a while will remember the various times this subject has come up. They even introduced sales tax on software for a while, but that didn't last. And theoretically, we still pay sales tax on the hardware part of the package - that is, the medium it's delivered on.

Being such a broad "goods and SERVICES" tax, the GST will presumably answer the other fact we often forget. Almost hidden on most software documentation is a clause to the effect that what we're buying is not the software, but a licence to use it. In many cases there's also a clause that says the original licence purchaser has no right to onsell that licence. That is, when you buy many software packages the manufacturer specifically denies you the right to sell it when you no longer need it. I can partly understand it when we're talking about bespoke software like manufacturing or financial systems, but not off-the-shelf software. Can you imagine if this was the case with books or cars?

Selling software as a licence theoretically causes another problem you mightn't have thought of. Look through the fine print and you'll probably find another clause that says the software may not be lent or hired or rented in any way. This is presumably meant to stop you setting up software rental shops so other people can take it back to the office for a couple of hours. What this effectively does is makes it difficult for resellers to organise rental bundles which include software. In practice of course, everyone turns a blind eye - until it goes wrong and someone gets sued.

The silliness of the situation is most apparent when the software is embedded in the hardware. Imagine trying to explain to a customer that they could buy the handheld organiser, but they'd never own the software that made it work. Forget the fact that there's no way anyone could get at it to separate it from the hardware.

My favourite bit about the GST is this. While a plumber or electrician will do the odd job for cash and not pay income tax on the earnings, once the GST is introduced he'll feel duty-bound to charge and pass on the GST on such jobs.


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