Industry Interaction with FM: Summary of discussions at the meeting held on June 4, 2020
NASSCOM, along with the Industry, organised a meeting on June 4, 2020 with Finance Minister to highlight Industry’s phenomenal effort in enabling a mass transition to Work from Home (WFH) resulting in almost 80-90% employees today working remotely to ensure business continuity. During the meeting, we discussed industry’s focus on tapping opportunities in attracting global IT-ITeS business including engineering R&D, due to the re-alignment of global supply chains. We also highlighted the following concerns faced by the IT-ITeS Industry during the meeting:
- Extension of SEZ exemptions under S.10AA of the Income Tax till March 2021.
During the meeting, we highlighted the role played by technology industry in India for driving India’s growth in the services sector. The importance of exports has become even more critical in the current context and SEZs will play a crucial role in this. As a follow up, we have made a submission to MoF requesting for extension of SEZ exemptions under Income Tax Act, 1961.
- Need for clarification that ITeS as defined under the Income Tax Rules are not “Intermediaries”.
We highlighted that the IT-ITeS industry has been grappling with challenges around being treated as intermediary and being exposed to GST on exports. We also highlighted that the long delay in resolving this issue has resulted in increase in number of cases involving denial of refunds, increase in number of enquiries, audits/ investigations leading to unnecessary litigation and contrary rulings/ decisions passed by Advance Ruling Authorities in various States. This increasing trend of the Indian revenue authorities in trying to tax various categories provided by the IT-BPM sector is concerning. Denial of ‘export benefits’ to the services provided on the grounds of “Intermediary” poses a huge risk for the entire BPO industry and will unfurl multitude of challenges. We have again made a detailed submission to MoF requesting for resolution of the issue.
- Discontinue investigations & disputes arising out of enquiries on software/ contract R&D companies for free of cost (FOC) software imports by Indian entities from foreign affiliates.
The GST law has a deeming fiction to treat an “import of services from a related party free of cost”. Based on inputs from members, we highlighted that there has been a sudden rise in the enquiries on software/ contract R&D companies seeking details of free of cost software imports by Indian entities from the foreign affiliates. Cases have been booked by officials for non-payment of IGST on free of cost imports of software and inquiries/ investigations are being carried out on all major IT companies. We also highlighted that the software provided by foreign parent is accessed only for provision of services back to the service recipient and the Indian company has no right whatsoever to “commercially exploit” the software. Thus, the right to access is restricted.
Pursuant to the meeting, we have made a detailed submission to MoF requesting them to provide clarification that such transactions of FOC software imports are exempt from levy of GST.
- Reimagining Labour laws to support remote working
Given companies are looking at adopting blended working models, the industry highlighted the need to relook and reimagine labour laws to support remote working including the need to exempt IT sector from archaic labour laws such as Standing Order towards ease of doing business was stressed. A subsequent submission was made by NASSCOM to Hon’ble finance and labour minister highlighting the industry concerns and suggestions.
- Policy reforms to promote startup ecosystem in India
We highlighted issues relating to taxation of Employee Stock Option Plans (ESOPs) granted by startups and also requested to harmonize taxation of Long Term Capital Gains arising on sale of shares of unlisted companies with the rates for listed companies. In this regard, we will submit a detailed note on the need for change in current policy relating to taxation of ESOPs highlighting some of the best practices for the consideration of the government.
- Equalization Levy:
Concerns relating to Equalization Levy could not be discussed at the meeting due to time and connectivity issues.
The Finance Act 2020 has broadly expanded the scope of Equalisation Levy. Based on industry feedback, we had on May 5, 2020 submitted a detailed representation highlighting issues where clarification/ guidance is required from the government. Pursuant to the meeting, we have again submitted a representation to Finance Minister’s office highlighting the following concerns:
- Enhanced scope of levy: The scope of EL appears to cover physical goods also. Further, it may cover purchase orders through email, customized software, ERP, etc as well as supplies with significant elements of the sales process such as enquiry, price negotiation, etc. undertaken through offline modes and only placing of the purchase order is done online. Hence, there is a need to define the scope of new EL and it should be limited to B2C digitised products.
- Enhance the threshold criteria for applicability of EL provisions: The threshold for applicability of EL provisions (i.e, INR 2 crore or more) appears to be very low. Countries like Austria, Turkey, Italy have made Digital Services Tax (DST) applicable to companies that generate €750 million (over INR 6,000 crore) in global revenues from covered digital services. Therefore, threshold for applicability of new EL provisions needs to be reviewed and set at an upward level.
- Other important clarifications: In our earlier representation, we had sought some important clarifications around how the consideration would be determined for levy of tax along with other clarification requests. Lack of clarity and short timelines for compliance is further compounded by the COVID-19 pandemic, which has disrupted business all over the world and compelled businesses to function at a fraction of their full capacity. Therefore, it will be useful if the government issues necessary clarification at the earliest. Our earlier representation to MoF on EL can be accessed from here.
- Implement EL provisions after consultation with Industry: While extra-ordinary circumstances might have constrained the government to expedite passage of the Finance Bill, we urged the government to consult the industry on: (a) the basis of the Levy; (b) practical challenges in implementation and enforcement; and (c) potential impact on e-commerce businesses.
The fact that due date for payment of first instalment of Equalisation Levy to the credit of Government is fast approaching (i.e., July 7), it is worrisome and is causing some level of anxiety within the Industry.
- Other Issues: During the meeting, NASSCOM highlighted the need to promote Made in India software products under the Atmanirbhar program and how the government can play a key role in procurement, funding and enabling market access was discussed. We also discussed about the need to attract semi-conductor manufacturing companies to set up plants in the country. Similar suggestion was made to increase manufacturing of computers and accessories.
NASSCOM is pursuing these issues and will provide further updates as things progress.