India’s Outsourcing is not yet hit by Obama’s biased tax plan and may not ever: Nasscom

Tuesday, May 5, 2009

NEW DELHI - India Inc believes the move by the Barack Obama administration to reduce tax breaks for US firms that ship jobs overseas will hit American companies more than impact on the Indian outsourcing industry. ‘It’s a more US-US issue rather than one aimed at stopping outsourcing, or off-shoring, or anything to do with India,’ said Som Mittal, president of the National Association of Software and Service Companies (Nasscom), a representative boddy for the industry.

‘If you look at Indian companies operating in the US, or elsewhere, they work there and pay taxes there. Hence, it is not about stopping outsourcing, or off-shoring, but just to collect taxes,’ Mittal told IANS.

His comments came after President Barack Obama said Monday that the current US tax system gave US-based multinationals that shipped jobs to places like India an unfair advantage over other domestic rivals and wanted corrective steps.

‘It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York,’ Obama said, explaining why he intended to close tax loopholes and crackdown on overseas tax havens.

‘I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens.’

According to a McKinsey-Nasscom study, the Indian software and outsourcing industry employs some two million people, earning total revenues worth $52 billion, of which nearly $48 billion comes from exports.

The Confederation of Indian Industry also felt that the remarks were more in the nature of posturing and that it was not intended at curbing outsourcing of work by US firms to Indian companies.

‘It’s an internal issue. It will only reduce their competitiveness,’ said Hari Bhartia, vice president of the chamber. ‘It is a populist posture. Perhaps his (Obama’s) intention was not the same. However, it sends a wrong message.’

According to Girish Vanvari, a tax expert and executive director with accounting and consultancy major KPMG, the Obama administration’s move was aimed at keeping American money within the country.

‘I don’t think this will happen. America is one of the largest free markets in the world - otherwise, you will have companies paying as much as 70 percent of their revenues as taxes,’ Vanvari told IANS.

Nasscom maintained that large US companies had subsidiaries across the world and that more than 50 percent of their revenues were coming from outside the US. The US move was to ensure that the large profits kept outside are also brought into the tax net.

‘President Obama is intending to collect those taxes to create more jobs in US,’ said the industry lobby that sent a delegation to the US last month to meet lawmakers, urging them to refrain from protectionist measures.

The delegation was told the ‘Buy America’ clause or moves to reduce the tax breaks for US companies that create jobs offshore was neither intended for India nor impact its software and outsourcing industry.

Infosys Technologies, India’s second largest software and outsourcing company, also felt that the US proposal was aimed at closing corporate tax loopholes and crack down on overseas tax havens.

‘We do not believe that it has anything to do with IT outsourcing done by US corporations,’ a spokesperson for the company said.

May 6, 2009: 3:59 am

In order to curb our ballooning budget deficit we have now turned to taxing our own multinationals. These U.S. firms will have a difficult time staying globally competitive if forced to pay taxes on foreign profits and this is primarily due to our monetary system being used as a printing press. The new tax plan may cause companies to move their business out of the U.S and deter new businesses from domiciling here. This plan will eliminate American jobs not create them.

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