EU VAT: No longer a threat

The European Union plans to impose value added tax on non-European companies that provide services in the European Union. But Indian IT companies are not worried, reports CNBC-TV18's Kritika Saxena.

It was a proposal that, when first announced, had Indian IT companies sweating at the brow. The EU plans to impose value added tax on non-European companies operating inside the EU starting the first of January. Indian firms were worried that this would scale up costs by 25%, making their pricing uncompetitive. But now, this panic has subsided.

Som Mittal, Chairman, Nasscom, says, "Its not about taxing or putting VAT on non-European companies. It's about harmonizing VAT within the European Union. As you know there are several countries each of which had a different VAT regime. B) The responsibility was not known whether this had to be done from the origination country or the receiving country. So now they have clarified that it will be the receiving country. And this is only within EU. So, its actually going to helpful for us because it takes away the complexity of our managing many VAT regimes our managing different regimes."

Even IT majors like Infosys, TCS and Wipro which conduct a large part of their business in Europe, will not be affected. V Balakrishnan, CFO, Infosys,  says, "Most of the customer contract clearly says all the transaction costs are paid by the customer. I don't think it will have any impact on the margin. "

The EU has also clarified that this tax will not be applied to offshore operations. Nasscom is clearly not worried about the VAT imposition by the EU. It says that it will be a positive for the IT industry, especially since it will harmonise the taxation system for companies.