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GST Council to Take Up BPO Outsourcing Issue

The Goods and Services Tax (GST) Council is on Friday expected to decide whether to treat back-of-fice services BPO companies provide to foreign clients as exports not liable for tax or an intermediary service charged 18% tax, officials told ET.

The decision would be crucial for the over $180-billion business process out-sourcing (BPO) sector that operates on thin margins and faces competition from other low-cost jurisdictions such as the Philippines and Malaysia.

The law committee of the GST Council has examined the issue after an Authority for Advance Rulings (AAR) order said these services were not exports and liable to tax, a senior government official said. “The council will now decide on it,” the person told ET.

Based on the decision, a new circular would be issued to identify if the entity was an intermediary or exporter of services, the official said.

It would provide clear scenarios through illustrations for tax officials to identify outsourcing entities engaged in exports and not liable to GST.

They levy has emerged as a key challenge for the country’s over 500 global in-house delivery centers, employing over 350,000 people. An 18% levy on these services impacts the entire cost dynamics of the domestic back-office model. The GST Council is expected to state that no service should be classified as generic intermediary service.

“The issue of intermediary has been impacting the GST-related export incentives available to the IT and ITES sector and a suitable clarification or a legislative change is required to give the much-needed impetus to this sector,” said Bipin Sapra, partner at EY.

Exports are zero-rated and not taxed locally as they are consumed outside.

Back-office services enjoyed such a regime before the rollout of GST.

TWISTS & TURN

The BPO sector has been in turmoil after the AAR in Maharashtra in 2018, responding to an application by Vservglobal Pvt Ltd, said that back-office support services didn’t qualify as “export of services”.

It said they were in the nature of arranging or facilitating the supply of goods or services between overseas companies and customers, ruling these services fell in the category of intermediary services liable to GST.

The government subsequently issued a circular in July 2019 to clarify the matter, but it was withdrawing after the industry pointed out that many issues were not addressed. S-ET

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