Are Indian companies who render services and support to MNC’s fall in the category of commission agents? Going by the norms of the Indian Tax Department, it seems they are just playing the role of commission agents and not exporters! This is the reason why they have to pay 18% Goods and Services Tax (GST), and they have been termed as “intermediaries” by the Authority of Advance Ruling (AAR). In addition to this, even the multinational firms who have back offices in India would have to pay the 18% tax on their revenues.
“The ruling is not in line with the interpretation adopted by industry, as typically an intermediary is someone who, like a broker, helps in concluding the sale or purchase and is not limited to data processing or support post the transaction,” said Pratik Jain, National Leader, Indirect Tax, PwC India. On this statement, AAR has clearly stated that these services are not “zero rated supplies” and hence, the tax is justifiable.
Earlier, such services were considered as exports, and therefore, no tax was applied to back office services. It might be a strong reason that India has become a hub for back office support for various multinationals. Indian companies were approximately earning $50 billion per year from the outsourcing market. However, now these services are taxable, and it would be interesting to know how organizations will deal with it. While the companies appear to be unsatisfied by this decision, many experts believe that it is a great step for the economic growth of India and the government has taken this decision thinking to fulfill their long-term vision of making India a powerful country.
Well, all we can say is time will reveal everything. Let’s keep faith and respect the decision of our government.