IT and ITES companies in India are challenging the constitutional validity of the government’s plan to brand BPO units as brokers or intermediaries, which means some of their services will be subject to 18% goods and services tax (GST). On July 18, the government issued a circular stating that certain services by IT/ITES firms should not be categorized as exports and are now subject to GST. The circular explained that certain IT/ITES services supplied outside India are merely broking services and not exports, with the indirect tax department issuing preliminary notices to captive units of multinational and Indian firms exporting offshore support services.
Industry experts said if BPOs are considered commission agents or brokers instead of exporters, their revenues would be subject to taxes as only exports are exempted from domestic taxes. A senior tax official with an Indian IT company expressed concerns that the new measure would force more BPOs and KPOs to transfer their operations to the Philippines.