India aims to keep business process outsourcing (BPO) service providers out of the ambit of the goods and services tax (GST), ensuring that they won’t face 18% tax. A directive, being given the finishing touches by the law review committee of the GST Council, is likely to draw a clear distinction between back office support service providers and intermediaries, said two government officials aware of the move. Such a move will bring relief to the $167 billion IT services and BPO sector that has been on tenterhooks following the Maharashtra Authority for Advance Ruling decision in the case involving Vservglobal Pvt. in November. This had held that back-office support services did not qualify as “export of services,” making them liable to 18% tax.
“A circular will be issued shortly, It is with the law review committee. The GST Council could take it up at the next meeting,” said one of officials, adding that such as clarification will help. The GST council is scheduled to meet on December 22. The circular is expected to make explicit what intermediary services are and categorise back office support services as principal-to-principal delivery. This will ensure that services provided by captive BPOS to their parents as well as by Indian back-office service providers are treated as exports and not face tax in the country. Intermediary services face 18% GST. Exports, as a principle, have to be tax neutral. Thus, all taxes used in the inputs are also reimbursed.
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