The country?s $50-billion software services export industry once again came in the line of fire with US President Barrack Obama reiterating his proposal to ?slash the tax breaks for companies that ship our jobs overseas? and instead ?give those tax breaks to companies that create jobs in the USA?.
Though the Senate is yet to pass the jobs Bill that ?includes some of these steps?, Obama?s rhetoric once again sent shivers down the industry?s spines, as the US market accounts for close to 60% of its revenues. A report by IT consultancy firm Forrester Research estimates that 3.3 million American jobs will be lost to outsourcing in 15 years ending 2015.
Obama?s statement, which was part of his State of the Union address, while meeting with thunderous applause on Capitol Hill may not impact the Indian outsourcing industry immediately. However, as a reiteration of his administration?s policy direction, it could spur the domestic IT & ITeS sector?s ongoing efforts to broaden the geographic horizon of its business.
IT industry body Nasscom put on a brave face, insisting that the Obama proposal would not impact the industry as ?the proposals appear to be aimed at addressing the tax rate differentials that exist across the world and if implemented, this would impact American headquartered companies with overseas operations?.
There was mixed reaction from the markets. While shares of the country?s largest IT exporter by sales, Tata Consultancy Services, fell 0.42% to close at Rs 740.40 on the BSE in an otherwise flat market; shares of third-largest firm Wipro rose 2.82% at Rs 672.9. Shares of Infosys fell marginally by 0.16% to Rs 2,494.35.
Several US technology companies such as Microsoft, IBM and Accenture have huge Indian operations. However, with a 33.9% tax rate in India against 35% in the US, the differential is not enough to significantly impact their local operations. Nasscom vice-president Ameet Nivsarkar said the impact would, in fact, be more broadbased and apply to not just IT companies. ?There is nothing that suggests that the changes will only apply to the technology sector,? he said.
However, offering a different view, Uday Ved, head of tax at KPMG, said that while this would in no way deter Indian software companies from getting clients in the US, the proposed changes would apply to only companies that have huge captive centres in India or anywhere else in the world as they outsource work in the true sense of the word.
?Obama first spoke about it a year back. However, nothing has happened as yet. Whenever Washington has tried to curtail offshoring, it has never really worked. And there are many more factors that businesses consider apart from just tax. Companies will find solutions to anything if they find the India story strong,? said Sudhir Kapadia, partner and tax head, E&Y.