Indian IT Companies Snubbed By Obama’s Tax Plan

US President Barack Obama’s latest Tax plan, or what Indian newspapers would call ‘latest rhetoric ‘say no to Bangalore and yes to Buffalo,’ has not gone well with corporate India. President Obama has to tax expenditure by US companies on availing services from outside the country from 2011. The move has been proposed to discourage outsourcing and contain the flight of jobs to other countries. However, India IT Inc feels that Obama’s protectionist policy will do little, if anything at all, to end the increasing number of job losses in US or improve its economy. Though there is varied response to how it will impact the Indian IT industry, there is consensus on one point: the new plan will hurt US much more than it can ever hurt Indian IT.

Lets look at some of the reports gathered in various newspapers in India related to these new tax plan by US.

RESPONSE OF INDIAN IT COMPANIES:

According to Nasscom the tax plan may actually end up reducing competitiveness of US companies with global operations when compared to their European and Japanese counterparts. Ameet Nivsarkar, vice president, Nasscom said,

“The proposals appeared to be aimed at addressing the tax rate differentials that exist across the world. It will impact American headquartered companies with overseas operations.” Nasscom said that the impact on global companies working in India would be “marginal” as they already pay an income tax rate in the country of 33.9 per cent while the US rate was around 35 per cent. Nivsarkar added, “The effect will not be significant on India. Obama’s plan is “not at all targeting” India’s outsourcing giants like Tata Consultancy Services, Wipro, Infosys and other companies”.

The Confederation of Indian Industry also feels that the Obama’s 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. According to Hari Bhartia, vice president of the chamber, it’s an internal issue. It will only reduce their competitiveness. He added, “It is a populist posture. Perhaps his (Obama’s) intention was not the same. However, it sends a wrong message.”

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. Reacting to the proposed changes in the US Tax Code, V Balakrishnan, CFO of Infosys Technologies, said, “It is not for us. It is for US companies that have operations in other destinations. It will not have an impact on Indian companies. We do not believe that it has anything to do with IT outsourcing done by US corporations”. he added.

Siddharth A Pai, managing director of technology analyst firm TPI, said it wasn’t the tax benefit or tax loophole that made outsourcing to India flourish all these years. “It’s the country’s cost and quality advantage, its huge, young labour market and its time zone and demographic advantage.”

Ganesh Natarajan, CEO and MD, Zensar, sees no immediate impact on the Indian IT firms in the light of the recurring protectionist voice coming from the US. But he said that the tax reforms that are being talked about have more to do with the global operations of US firms.

Source: Time of India, Hinustan Times