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Indian authorities have hit leading IT outsourcer Infosys with a $3.9bn tax demand, making it one of the latest of the country’s corporate champions to run afoul of government revenue collectors.
Infosys confirmed the Rs324bn tax bill just as the Indian IT industry showed signs of a nascent recovery following a worldwide tech spending slowdown.
The country’s second-largest IT outsourcer said on Wednesday it had been issued notices for payment of goods and services tax by agencies in its home state of Karnataka and from the national Directorate General of GST Intelligence for the period of July 2017 to March 2022.
The tax demand related to “expenses incurred by overseas branch offices”, said Infosys, which is headquartered in the Karnataka capital of Bengaluru, India’s Silicon Valley.
“The company believes that as per regulations, GST is not applicable on these expenses,” it said.
Infosys is one of many large Indian and overseas corporations that have been frequently stung by backdated tax claims from officials in the world’s fastest-growing major economy. The abrupt levies and other concerns about tax enforcement have sometimes overshadowed the growing international enthusiasm towards the country as an investment destination.
Foreign and local companies often find themselves mired in lengthy legal battles contesting demands and many grumble about India’s opaque and onerous tax regulation. Vodafone and Cairn Energy spent years disputing high-profile, multibillion-dollar retrospective tax disputes with India’s government, eventually claiming victory.
Last year, Indian authorities suddenly sent notices to the country’s fantasy sports and gaming companies for hundreds of millions of dollars in back taxes.
Citing a recent notice from Indian agencies, Infosys said “services provided by the overseas branches to Indian entity are not subject to GST”. The company added that it was “fully in compliance” with regulations and “in fact eligible for credit or refunds for its exports of IT services”.
News of the tax demand came after Infosys and other industry bellwethers, including Tata Consultancy Services, posted buoyant quarterly earnings earlier in July. The results bolstered optimism that a drought in global tech spending might be ending as demand recovers from the financial sector customers that provide most of their business.
Tech services are one of India’s global success stories and a big source of white-collar employment for the world’s most populous country as it struggles to create jobs for a growing young workforce.
The industry — much of it based in Bengaluru — was also spooked by an attempt this month by Karnataka’s government, which is controlled by the Indian National Congress, the country’s main opposition party, to force companies to give up to 70 per cent of jobs to locals in the state.
The state’s chief minister put the new rules on hold after virulent opposition from companies and industry lobby groups in the tech hub, which is also the location of substantial operations for prominent foreign companies from Walmart to Goldman Sachs and for thousands of start-ups.
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