18% GST on back-end IT services since they don’t qualify as export

Most facilitation services the IT and ITeS sector offers at the back end, particularly as per business procedure outsourcing, may pull in an 18 percent goods and services tax (GST) since the government has said those won’t qualify as export.

Clearing the confusion identified with exports of IT and ITeS services, the government said the services encouraging the supply of goods or services would not qualify as export and would be perceived as intermediaries, drawing an 18 percent GST.

The move will have consequences for service providers in back-end services and post-sales support, among others.

Acting as facilitators between abroad parent organizations and Indian clients by doing general marketing, answering fundamental inquiries, or giving post-deals backing was, so far, usually not being intermediaries, said Harpreet Singh, a partner in KPMG.

“Except if the degree was substantive and included finishing contracts, negotiating cost, and so on., the tax was not paid, regarding such services as export. This position should be revisited now,” he said.

However, if service is given in alone account, it will be viewed as export.

Export is viewed as a zero-rated supply under the GST and a discount can be asserted.

The circular, issued by the Central Board of Indirect Taxes and Customs (CBIC), is planned for putting to rest litigation and questions identified to export-related refunds.

However, experts have different perspectives.

Atul Gupta, the senior director, Deloitte India, said the CBIC circular perplexed the issues and left open scope for litigation.

“It will be a weakness for the export of services since exporters never again can guarantee input tax discounts on them,” he said.

Gupta said the circular was defective and required another look before it resulted in demand notices from GST field arrangements on outsourcing services.

Bipin Sapra, accomplice, EY, said certain grey areas proceeded yet this would carry relief to an enormous segment of IT and ITES exporters confronting unimportant requests and refusal of export benefits.

“The explanation will help in settling most objections with respect to exports of services and the exporters will get discounts.”

The issue is significant in light of the fact that solid portrayals were made by industry bodies, for example, Nasscom and Amcham for clarity regarding the matter.

Nasscom said it was concentrating on the effect of the most recent development.

The government has inspected three major situations, wherein a provider of ITeS situated in India supplies services for and for the benefit of a customer abroad, to explain its treatment under the GST.

The Maharashtra Authority of Advance Ruling (AAR) had maintained back-office operations that don’t qualify as export.

Abhishek Jain, tax partner, EY, said, however, the circular addressed to standard back-office activities, matters that required back-end and assistance remained a matter of concern.

In circumstances where a back end services supplier utilizes his own account just as well as arranges or facilitates providing support services identified with pre-or post-delivery in the interest of abroad customers, taxability will be discovered case by case.

Enquire with Certicom Consulting for more details.