The needless uncertainty faced by India’s business process outsourcing industry, also called the information technology enabled services (ITeS), must end. The GST Council needs to clarify at the earliest what constitutes exports and therefore should not be charged GST. Countries do not export local taxes and exports are meant to be zero rated under GST. Ideally, the Council must amend the IGST law to remove the exception carved out for “intermediary services” that are taxable even if the customer is abroad since the place of supply of the service is India. The amendment will bring the law in sync with global practices — worldwide, GST is applicable only on services that are consumed in the home country — and also ensure that it does not endanger the country’s outsourcing industry.
A Maharashtra Authority of Advance Rulings held that back-office support services do not qualify as export but are in the nature of arranging or facilitating supply of goods or services between overseas companies and customers. It categorised these as intermediary services, liable to 18% GST, on the ground that the place of supply of service is the location of service provider. Rightly, the industry worries that the levy would derail the cost dynamics of the back-office model that operates on thin margins and faces competition from other low-cost jurisdictions such as the Philippines.
A government circular in July said that select BPO services will qualify as exports and won’t attract GST. However, it left the key issue of classifying whether a company offered intermediary services or carried out exports to the discretion of the taxman. This has led to a spate of notices on ITeS firms, and their refunds not being processed. This must stop, the sooner, the better.
via Bring tax clarity to export of services