US tax curbs won’t hit us, say BPOs

While announcing his proposed tax reforms in Congress, US president Barack Obama, ominously, chose to cite Bangalore’s example to support his plan to end tax breaks for firms outsourcing jobs.

Obama said he was seeking to change the “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”.

If the reform were to become law, it would hurt many US companies like Intel, IBM, Accenture, Google, Cisco, and AMD, which have set up shop in India. Currently, companies like Accenture have a higher headcount at their development centres in India than in North America.

But would Obama’s bid to withdraw tax incentives put American companies investing in India on the back foot? Partha Iyengar, vice-president and regional research director at Gartner, doesn’t think so. “This tax break, which came about under president George Bush’s regime, helped MNCs to defer tax payment on profits till the time it was repatriated to the US,” he said. “It now puts the onus on them to repatriate profits to the US.”

TV Mohandas Pai, Infosys HR head, said the reform would have “least impact” on Bangalore and offshoring. “It has to do with American companies in banking, financial services, retail, and other sectors — including services — operating in the overseas markets,” Pai said. “Of these, services is a very small part, and within services, IT outsourcing is even smaller.”

Raman Roy, chairman and MD, Quattro BPO Solutions, said: “Indian companies were getting no tax incentives. Removal of tax incentives internationally will only impact India favourably.” 

IT representative Nasscom said the impact of Obama’s proposal on India would be marginal. “Global companies that earn profits here are subject to a tax rate of 33.9% (including surcharge and cess) and the impact of the proposed reforms on them would be marginal,” it said in a statement.

But industry bodies Assocham and Ficci remain nervous. Sajjan Jindal, Assocham president, called on the US to reconsider the decision, saying it would be the biggest loser. “Protectionism will kill the spirit of competition and dilute the spirit of the World Trade Organisation,” he said.

Harsh Pati Singhania, Ficci president, said: “In this era of globalisation, a more meaningful measure would have been to evolve a consensus on harmonising national taxation systems.”