India 18% GST on back office outsourcing exports

An Indian advance rulings authority has held that Indian businesses providing non-resident companies with certain accounting outsourced services will have to charge 18% Goods and Services Tax.

Generally, under OECD VAT or GST rules, exports of services to businesses are indirect tax-free. This ruling could potentially damage India’s outsourcing businesses since non-resident businesses will struggle to recover the 18% tax levy.

Details of the case included:

• The Indian outsourcing company provided outsourced sales and purchase contract execution services, including preparing: sales contracts; sales invoices; and purchase orders. Payment processing for sales and purchases. Maintaining payroll records and payroll processing.
• The outsourcing company applied for a ruling on whether the above services should be considered a nil-rated GST export service where the customers were not Indian residents.
• The Maharashtra Authority for Advance Ruling committee found that the services were arranging and facilities for the supply of services between its clients and customers, which are GST-liable intermediary services – and not export services.

The interpretation of back-office accounts services as intermediary services instead of export services will be concerning for many Indian services providers given the extra unrecoverable costs they may now incur.