Bangalore, July 21: The IT products and services sector in Karnataka observed a daylong strike today to protest the increase in sales tax proposed by the United Progressive Alliance in its maiden budget.

In what was a first for the IT industry, about 3,000 dealers of products and services across Karnataka responded to a call by the Association for Information Technology to shut shop for a day.

The protest was staged to warn the state government that Karnataka could lose its leadership position in the IT sector with such a stiff dose of taxation.

“The proposed tax hike will make Karnataka the highest taxed state in the country for the IT industry, including the hardware and software sectors,” Dhananjay Collur, the president of the association, said.

The UPA has revised the tax rates on computer software, hardware, peripherals and cleaning kits from five to 12 per cent. The tax on computer consumables would be increased to eight per cent from five and on electronic goods and accessories from 13 to 16 per cent.

The association’s memorandum to chief minister Dharam Singh and his deputy Siddaramaiah — who holds the finance portfolio — said: “By penalising with a 13.8 per cent sales tax, the government will be killing the entrepreneurial spirit of Karnataka. For short-term gain, the government is sacrificing hundreds of Narayana Murthys (Infosys chief) from coming up to make our state proud.”