Software industry body Nasscom said on Monday an 18 percent GST rate on back office and support services to multinational companies could lead to "unwarranted disputes", potential job losses and may dent India's image as a global service provider.
Expressing surprise at a recent order by Authority of Advance Ruling (AAR) that back office services do not qualify as exports and are taxable under GST, Nassom warned it could lead to government entities demanding retrospective tax from companies based in India, and also render players "non-competitive" in the global market.
"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," Nasscom said in a statement.
It added that this will have a direct impact on more than 500 GICs (Global In-house Centres) with over 3.5 lakh employees currently operating out of India, and supporting their global counterparts.
Recently, the Maharashtra bench of AAR - in the case of Vserv Global - had upheld that back office support services qualify as 'intermediary' services, and in turn liable to 18 per cent Goods and Services Tax (GST).
The applicant - Vserv - in its plea had asked the AAR to decide as to whether support services provided by the company to multinational clients would qualify as 'Zero Rated Supply' under GST.
The AAR held that to qualify a transaction as export of services, it has to satisfy all five elements of the definition of services export simultaneously. The services, proposed to be rendered by the applicant, do not qualify as 'export of services' and thus, not a 'zero rated supply' as per section 16(1) of the IGST Act, 2017, it had ruled.
Tax experts noted that in the erstwhile service tax regime, an intermediary was seen in the context of broker services and the concept was not extended to support services. Hence, the said ruling by the AAR is contrary to the position taken by the revenue department in the previous service tax regime, they observed.
"At a time when, when India's image is bullish on ease of doing business parameters, it is advisable that we ensure a transparent and clear tax regime to maintain our global leadership position," Nasscom said.
The software body said it is hopeful of early resolution on this matter to address industry's concerns.
Nasscom said the AAR ruling has taken the industry by "surprise".
"This could lead to unwarranted disputes and uncertainty in case of exports as once a service is treated as 'intermediary service' under the GST laws, then these services would not qualify as 'export of service' even if they are rendered to overseas entities and GST would apply," Nasscom pointed out.The association said India is a large hub for export of an array of IT-enabled services with exports being over $126 billion in FY2017-18.