The Hindu : BPO tax continues on OECD norms

Online edition of India's National Newspaper
Wednesday, Feb 04, 2004

Business

Business

BPO tax continues on OECD norms

By Sushma Ramachandran

NEW DELHI, FEB. 3. The Union Government today sought to clarify that the new taxation regime for business process outsourcing (BPO) is on the lines of OECD norms and does not violate any double taxation avoidance agreements. Tax on BPO operations will have to be paid if the activity is based in this country and work is being carried out abroad for clients in other countries.

This would cover services such as export or maintenance of software abroad as well as travel agencies. At the same time, foreign companies that provide ancillary services here like credit card enquiries will not come in the tax net.

Disclosing this here today, the Chairman of the Central Board of Direct Taxes, P. L. Singh, told The Hindu that the Finance Minister, Jaswant Singh, had mentioned the new BPO tax in the interim budget to provide an assurance that the country was not following what are known as "harmful tax practices.'' In other words, he said India was not merely trying to lure business here without taxing these services and was thus following the same norms as OECD countries. Besides, it also provided an assurance that the double taxation agreements signed with various countries were not being violated by the new tax which had been levied only recently.

He stressed the Finance Minister's statement on the BPO tax did not imply that it had been withdrawn but was merely a clarification of the existing situation. The tax on BPO operations has come in for a great deal of flak from the software industry as it was felt it could deter foreign companies from setting up call centre operations here and providing huge employment opportunities in metropolitan areas.

Mr. Singh sought to counter this criticism in his statement in the interim budget on this issue. He noted that BPO has scope for employment generation.

Then he went on to clarify, "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.''

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