India could soon offer some relief to the back-office support sector that is rattled by the recent Authority for Advance Ruling (AAR) decision that servicesNSE -3.32 % rendered to overseas clients did not qualify as exports and would face GST of 18%.
The issue could be clarified soon, said a senior government official privy to the deliberations. “Officials are examining it after which the law committee under the GST Council would take it up,” the official told ET.
The $167-billion IT services and BPO sector has been in a turmoil since the Maharashtra AAR gave its ruling in response to an application by Vserv Global Pvt Ltd a month ago.
The authority held that back-office support services rendered by the applicant did not qualify as ‘export of service’ and were in the nature of arranging or facilitating supply of goods or services between overseas company and customers, falling in the category of intermediary services .
Exports do not face tax in the country as they are consumed outside and back-office services have enjoyed this benefit even in the erstwhile service tax regime.
The AAR decision has hit both Indian back-office service providers as well as the captive units of multinationals. India has more than 500 global in-house delivery centres, employing over 3.5 lakh.
A levy of 18% on these services would completely derail the cost dynamics of the back-office model that operates on thin margins and increasingly face challenges from other low-cost jurisdiction such as the Philippines.
The issue could be taken up by the GST Council or even clarified by the GST Implementation Council once the law committee firms up its view, said the official quoted earlier.
Industry bodies such as Nasscom have represented to the government on the issue. Association of some US firms is also likely to take up the issue with the government.
Industry fears taking a big hit if this interpretation of the intermediary services could be used to qualify any back-office support service as intermediary .
“The concept of intermediary is prone to misinterpretation and in spite of a number of cases of service tax regime settling the definition, the GST department is creating disputes for exporter of services, given conflicting AAR rulings,” said Bipin Sapra, partner at EY.
“The GST Council needs to amend the law or clarify the intent, else the exporters of IT & ITES services will be saddled with unnecessary GST costs, which will make them uncompetitive,” he said.
Source : PTI