BENGALURU: The decision of Authority of Advance Ruling (AAR) on the services by back offices in India might impact the country’s image as a global service provider, IT industry body Nasscom said on Tuesday. The apex trade body of Indian IT companies also said that such rulings could also lead to government entities asking of retrospective tax from IT firms based in India.
Nasscom feels this may impact India’s image as a global service provider and could lead to government entities asking of retrospective tax from companies based in India,” it said in a statement. Earlier, the AAR, in a ruling, said the services provided by the back offices should be considered as “intermediary” services. Under the Goods and Services Tax (GST), these intermediary services would not qualify as “export of service” even if they are rendered to overseas entities and 18 per cent GST would apply.
India’s Information Technology Enabled Services exports for the 2017-18 financial year (FY18) was over $126 billion, witnessing a growth of 7.7 per cent over FY17. As per the ruling of the tax body, the back offices of multinational companies now may face 18 per cent GST. This will have a direct impact on the over 500 Global Innovation Centres (GICs), with over 3.5 lakh employees operating out of India. These GICs support operations of their parent companies with support services, software development centres and data processing back offices, and also serve their clients.
With the ruling, Indian companies providing back-office services may also become liable to pay the 18 per cent GST.
“Our preliminary analysis suggests that the concept of exclusion of ‘main service’ from intermediary services entry has been ignored in the ruling. If the implication of this ruling is not suitably clarified, it will make our companies non-competitive in the global market, potentially resulting in loss of revenue, jobs and customers,” the IT industry body added.
“This ruling could open the Pandora’s box for various India set-ups that are assisting foreign companies with back-office support functions such as accounting and legal services. As these services do not qualify as exports, 18 per cent costs on these services could make them non-competitive,” said Abhishek Jain, Tax Partner, Ernst & Young India.