Taxing BPO centres: Nasscom expects a rollback

KOLKATA, MARCH 3. The National Association of Software and Service Companies (Nasscom) is expecting a roll back of the recent Central Board of Direct Taxes (CBDT) circular on taxing international business process outsourcing (BPO) segment. Talking to newspersons here today, Nasscom President, Kiran Karnik, said they were expecting the Government to resolve the issue shortly.

The circular issued in January, aimed to bring BPO units working for overseas clients under the tax net, underlines that when a foreign firm outsources its revenue generating business activities from India, a portion of the profit generated by the foreign firm from its customers abroad will be attributable to the activities performed by the IT enabled entity in India. Such profits therefore will be taxable in India in accordance with the Income-tax Act or relevant tax treaty. "We are not happy. It caught us by surprise. The BPO sector is growing and needs support. We have taken up the issue with the Centre. The Government was reasonably positive. I hope the issue will be resolved," Mr. Karnik said.

BPO activities in India are projected to touch $3.6 billion in the current year and $13.8 billion in the next three years. Apprehensions that the CBDT move might throw a spanner into the wheels of this rapid growth prospects, were expressed from different corners.

The Nasscom chief had also expressed his concern over the recent U.S. move to restrict outflow of jobs. Stating that independent studies had shown that such outsourcing had helped U.S. economy, Mr. Karnik dubbed the whole move as an `election rhetoric'.

The association is also actively pursuing measures to improve the working conditions of employees in the BPO industry, better known as call centre operations, and expecting the Centre to allow the international call centres, operating mostly during night, to tap the domestic business during their idle hours. "We are expecting some announcements in this regard in the next two weeks," Mr. Karnik said. He, however, ruled out the possibility of self- regulation.