BPOs hail decision on tax status quo

BPO businesses heaved collective sighs of relief on Wednesday as they assessed a positive impact from the government’s clarification on...

BPO businesses heaved collective sighs of relief on Wednesday as they assessed a positive impact from the government’s clarification on how international BPOs will be taxed. ‘‘Withdrawing the circular is a step in the right direction. It did exactly what we had asked for. The government has put MNC BPOs on an equal keel with other BPOs, restoring a level playing field. There is nothing negative in it,’ said Raman Roy, chairman, Wipro Spectramind.

The controversial circular, issued in January, proposed to separately tax ‘‘core’’ and ‘‘non-core’’ functions of multinational BPO centres. Industry rallied against the circular, saying it went against established taxation norms and put international firms and captive centres at a disadvantage.

The circular was withdrawn on Tuesday, and a fresh CBDT circular restoring status quo before January has been issued.

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The withdrawal, and a resultant clarity on taxation could spur the sector into greater growth, said industry sources. ‘‘The more clarity we get as an industry, the better it is for us,’’ says S. Bharthwaj, vice president, global marketing, 24×7 Customer. ‘‘Third party centres were not likely to be affected by the tax circular. Now captive centres will need to look out for avenues for growth,’’ he added.

Nasscom, which represents software and services companies in India also welcomed the circular, saying it will clarify ambiguities.‘‘The circular incorporates Nasscom’s recommendations to follow the arm’s length principle for taxation of captive ITES-BPO units in India,’’ it said in a statment.

‘‘The status of taxation is now as it was last year when growth was at 60 per cent-plus. Now, the government has said all BPO entities, will be taxed, based on the incomes they attribute to their operations here,’’ he said.