Such exponential growth required more streamlined and simplified exchange control regulations governing the export of services, an understanding of the stakeholders in the system and whether and how they can be effectively regulated. This is a major shortcoming of the draft regulations. Service providers often operate in an informal or quasi-formal economy; they engage as individuals, and typically transact for small sums. The draft regulations do not appear to have considered such factors.

All service providers will now have to declare the full value of all exported services rather than of software only under the EGS regulations. Providers of small-scale export services must now submit an export declaration form (EDF) naming an authorised dealer. This will significantly increase the complexity and stress of doing business. The draft regulations have no exemptions and small amount thresholds, a necessity in operating in small-value, digitally delivered and gig economy export services sectors.

Because many individuals take part in this industry, most of these service providers will likely be unaware of the reporting requirements. These individuals will have broken the regulations if they are not amended. Having to obtain an importer-exporter code and having entered into a formal contract, as required in the EDF, will further pressure these service providers, who will be offenders when the draft regulations come into force.

The draft regulations caution-list service providers who fail to collect payment within the prescribed timelines. While no service provider can be caution-listed without being given an opportunity to be heard, their backgrounds make it doubtful that they will be effectively heard. This will be particularly challenging for service providers in the informal and quasi-formal sectors, who frequently experience delays in payment. The draft regulations should provide a small amount threshold before caution-listing to exempt small-scale service providers from the strict requirements usually applied to service providers in the formal sector.

The EDF imposes logistical barriers of invoicing and payment that are easily removed. Account should be taken of payments to third parties, payments through third parties and payments through mobile applications and other digital platforms.

A welcome change in the draft regulations is the removal of the requirement in the case of advance payments that the shipment of goods and provision of services must be completed within one year of such payments. Contractually agreed timelines now deal with this.

Although the streamlining of exchange control laws applying to the export of service is appreciated, the indiscriminate application of the proposed changes to all stakeholders should be rethought. Those providing small-scale export services as previously described will be unnecessarily burdened. Identified service categories should be exempted from the full applicability of the regulations and should be granted small amount thresholds.

This article was originally published in India Business Law Journal on 28 October 2024 Co-written by: Dorothy Thomas, Partner; Ragul Murali, Senior Associate. Click here for original article

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