BPO firms worry over service tax, commuting

The BPO industry wants a more level playing field when it comes to service tax paid on exports.

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While firms in the software sector are hoping for an extension of a "sunset" clause that provides tax breaks for firms registered with the Software Technology Parks of India (STPI), business process outsourcing (BPO) firms that employ workers on night shifts are concerned that the alternative to retain tax breaks by shifting into special economic zones (SEZs) would force workers to commute outside their towns and cities.

“We are providing an alternative to public transport by employing private sector transport on a large scale and the govern ment should look at providing some subsidy for these vehicle owners,” says P. G. Raghuraman, lead executive at Accenture’s BPO operations.

The BPO industry also wants a more level playing field when it comes to service tax paid on exports. Currently, companies outside STPI registration are treated like domestic service companies and end up paying service tax and other charges.

“The service tax paid by BPOs range from 28-60 per cent depending on the contract size,” says an analyst at a Mumbaibased brokerage house. There are concerns also within the industry when it comes to the taxation issue as interpreta tions and ambiguities exist. Mukul Agraw al, managing director, Unisys Global Services India, says, “In the past there has been a lot of discussion and a few circulars have been issued and were with drawn later. The entire industry would benefit if there was more clarity in the coming budget.”

The STP policy has a sunset clause under which registered in formation technology firms get exemption from income tax un der Section 10A and total customs duty exemption on capital goods imports. The units also get 100 per cent excise duty exemption on procurements made within India and a tax waiver on domestic sales of up to half the foreign exchange earned by a unit.

However, the emergence of SEZs has put a big question mark on the future of compa nies that are not big enough to set up their own SEZs. Many call centre and BPO companies are small and operate from premises within city limits. This means that they can be deprived of both STPI and SEZ benefits, unless the government enables some provisions.

Industry officials are also hoping to get refunds of service tax deducted in doing work for overseas customers, just as excise and customs duties for exports on inputs used are refunded by the government.

First Published: Feb 24, 2007 00:54 IST