IT industry seeks clarity on tax provisions for BPO/KPO services, quashing of angel tax

IT industry body Nasscom has urged the government to clarify tax provisions that treat BPO-KPO services as intermediaries under GST rules, and scrap angel tax levied on investments in startups.

Expressing concerns over rising instances of revenue authorities treating IT-enabled services, including BPOs and KPOs, as ‘intermediary services’, Nasscom Senior Director and Public Policy Head Ashish Aggarwal said there is an urgent need to address the outstanding issue.

“These companies are in no way engaged in any facilitation/ arranging of supply of goods/services at a pre-supply stage… There is a need for clarification that BPOs and KPOs will not qualify as intermediary service…,” he said, outlining the industry’s Budget wishlist to the government.

Aggarwal pointed out that during the last year, the GST Council had provided several clarifications on many aspects that have helped the industry.

However, there are “continued ambiguities and concerns” pertaining to determination of place of supply, blockage in working capital due to self-supplies, treatment of Head Office Branch office transactions, SEZ procurements etc that require urgent resolution, he said.

“These need to be addressed to ensure ease of business, growth and sustenance of the sector’s exports competitiveness,” Aggarwal added.

He also called for scrapping the angel tax provision and said the focus should be on measures to incentivise startups.

“Angel investors invest at the earliest stage of the company and at the highest risk. They are critical to the creation and growth of new companies and need to be encouraged, if not incentivised,” he said.

Aggarwal explained that the flaw in the present approach is the focus on valuation as a means to verify the genuineness of the investment transaction.

“As is well recognised, valuations in unlisted companies are generally subjective and this is more so in the case of start-ups. Therefore, there is a need to shift the focus away from valuation,” he added.

The issue needs to be taken up at the earliest as “this is a matter of survival for start-ups and strengthening the startup ecosystem”, he added.

Aggarwal said the Indian IT-BPM industry today stands at USD 167 billion market and employs around 4 million people.

Despite the slowing down in growth rates, the industry has added about USD 24 billion revenue since FY2016 and continues to be a net hirer (over one lakh additions in FY2018).

“India is strongly placed to be the digital transformation partner for global businesses and is also home to more than 5,000 start-ups. The upcoming Budget should focus on ensuring that Indian companies remain globally competitive and ensure ease of doing business,” he said.