Ambiguous Tax Norms For Foreign Players Leave Industry Perplexed
The Indian Express, 04 February , 2004

 

NEW DELHI/MUMBAI: The interim Budget 2004-05 has come as a disappointment for the business process outsourcing (BPO) industry that was looking for clarity in taxation norms for foreign companies with BPO operations in India. According to industry players and associations, the Budget lacks clarity in defining ‘auxiliary and ancillary’ BPO activities by foreign players.

“We are hopeful that the government will make favourable changes to foster growth in this industry. The Budget has not clarified on the ancillary and auxiliary activities,” National Association of Software and Service Companies president Kiran Karnik said.

Finance minister Jaswant Singh in his Budget speech said, “BPO has scope for employment generation. It has been clarified that if outsourced services are ancillary and auxiliary in nature and adequate remuneration is paid to the Indian call centre, then there shall be no tax on such foreign company as has outsourced its activity to India. This policy is on the lines of OECD (Organisation for Economic Co-operation and Development) norms and double taxation avoidance agreements.”

BPO companies like 24/7, Transworks, EXL Service, Technovate, ICICI OneSource as well as QAI, an IT and BPO training and consulting company, have raised doubts regarding Budget announcement on the BPO companies.

“This fails to provide sufficient incentive to all the BPO companies including companies that outsource their core BPO/call centre activities. There is a tax concession for a select group of companies and it is a short-term view,” QAI IT-enabled services (ITES) head Umesh Vyas said.

“We believe that whether a service is core or auxiliary or ancillary, it should not be charged. Since there is no distinct definition of core versus auxiliary, it is not clear as to what type of services this applies to. However irrespective of the type of service, foreign companies should not be taxed,” 24/7 founder and CEO Shanmugam Nagarajan said.

Some industry experts said that the Budget announcement will discourage foreign companies from making India a base for their BPO operations.

Godrej Industries managing director Nadir Godrej said, “The concern area in the Budget is the BPO, wherein the core activity of a multinational company in India is taxed while its peripheral activity is exempted from tax. This will force MNCs to keep their core activities away from India, thereby resulting in loss of employment opportunities for Indians.”

Transworks chief executive officer (CEO) Prakash Gurbaxani said, “Unless the circular specifies all the categories under BPO services there will remain room for confusion.”

ICICI OneSource CEO Anando Mukherji too asks for clarity on auxiliary and ancillary activities within BPO.

While leading ITES player Daksh eServices and Electronics and Computer Software Export Promotion Council (ESC) have welcomed the move, MNCs like Hewlett Packard, American Express and GE that have BPO and IT-enabled services activities in the country, refused to comment on the same.

Back