Hyderabad/New Delhi: Some provisions of the constitutional amendment bill on the goods and services tax (GST) could undermine the competitiveness of India’s information technology (IT) industry and have the potential to spark disputes and litigation, the software and services sector lobby group has warned.
Complex billing and invoicing requirements due to the supply and valuation provisions of the GST bill could complicate taxation for IT companies and make life difficult for the services sector in general, and IT industry in particular, National Association of Software and Services Companies (Nasscom) president R. Chandrashekhar said in Hyderabad.
He pointed out that model GST law would see as many as 111 points of taxation as companies supplying services on a pan-India basis will have to seek registration in as many as 37 jurisdictions—29 states, seven union territories, and the Centre.
Under the GST regime there are three tax points: central GST, inter-state GST and state GST. Multiplying three GSTs with 37 jurisdictions take the total number of points of taxation to 111, Chandrashekhar explained.
This means IT companies, as other services firms, will have to register and file compliance reports at as many as 111 points.
Currently, IT services are governed by a simple regime, where there is one single point of taxation—the central service tax and one single point of registration.
“So, moving from the single point to 111 could definitely prove to be a challenge in terms of ease of doing business," Chandrashekhar said in Hyderabad. “The services industry at large was administered under a single authority in the centre under the service tax regime. The simplicity and certainty that it offered needs to be emulated in the GST law that states and centre adopt subsequently," he added.
The ‘place of supply’ provision of GST may require multiple invoicing if services delivered under a single contract are delivered from various offices/centres of the same entity, Nasscom said in a separate statement.
While GST brings clarity on taxation of electronic downloads and subsumes multiple levies, valuation of services provision can potentially lead to disputes and litigations, Nasscom said. This could lead to a transfer pricing-like situation for intra-company supplies and will necessarily require refunds, the lobby group noted.
E-commerce marketplaces stand to lose significantly because of taxation requirements on businesses that transact on online marketplaces.
The provision mandating ‘tax collection at source’ transactions on a third-party e-commerce marketplace is “discriminatory" and can potentially render such e-commerce marketplaces unviable, Nasscom said.
The proposed GST Bill is likely to negate the beneficial impact of e-commerce on hundreds of thousands of small businesses in the country by compelling them to seek refunds, thereby compounding their working capital problems.
New age businesses like e-commerce and online aggregators are changing the way business is done and are bringing in previously unheard-of efficiencies, said Sanjeev Bikhchandani, chairman of Nasscom Internet Council and executive vice chairman of Infoedge (India) Ltd, an e-commerce/on-line classifieds company.
“The GST regime should adapt to these changes with an eye on the future. However, apprehensions prevail on the administrative requirements that could potentially render internet-enabled businesses uncompetitive. We believe this is not the intent of the government and will work closely with revenue officials towards enabling a simple and enabling GST regime for all," he said in a statement.
The new tax regime should also be future-ready and cater to the needs of the emerging digital economy in the country, added Chandrashekhar.
“The industry has been discussing challenges related to multiple registrations in each state and associated complexities that may arise in the GST regime," said C.P. Gurnani, Nasscom chairman and chief executive officer and managing director of Tech Mahindra Ltd.
“We are confident that given the government’s commitment to ease of doing business, we will be able to address the industry concerns in totality."
IT units in special economic zones (SEZs) will lose some inherent advantages because there is no provision for upfront tax exemptions in the GST bill.
As a result they will have to apply separately for refunds. SEZ units have enjoyed upfront exemptions so far.
Besides, reverse charge of GST on import of services used as input for services that are exported, could lead to locking in working capital, Nasscom noted.
“All that we are saying is procedurally don’t make it a nightmare. It should not become a negative from the point of view of ease of doing business," Chandrashekar said. “It is important that as GST gets implemented, it should also be with one eye on maintaining the ease of doing business or at least making it easier, but not difficult."
GST should not deviate from its aim of improving ease of doing business in the country, Abidali Z. Neemuchwala, chief executive officer of Wipro Ltd, said in a statement.
“In the process of implementing GST through legislations, we must collectively ensure there is no drifting away from the intent of the Bill and the cornerstone principles of this Government in improving ease of doing business and reduced tax related litigation in India," Neemuchwala said. “I am sure the government would engage meaningfully with the industry on its concerns and arrive at an effective framework for implementation of GST."
Kris Gopalakrishnan, co-founder of Infosys Ltd. and chairman of Axilor Ventures, welcomed the GST amendment.
“This is good for the IT industry since services they deliver in India will come under GST. Of course, the GST rate has to be reasonable," Gopalakrishnan said.
GST could also generate business for large and small IT companies as organisations across the country reconfigure their IT systems to adhere to the new tax regime, he said.