GSP withdrawal impact: US firms to pay an additional $300 million in taxes annually in India

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Published: July 18, 2019 3:08:58 AM

Earlier, around 2,000 products including auto components and textile materials could enter the US duty free due to GSP and India was the largest beneficiary of the programme in 2017 with $5.7 billion imports given duty free status.

GSP withdrawal impact, GSP withdrawal, Generalised System of Preference, US firm in India, IACC, economy news, US market, RBIThe roundtable was organised by Western India Council of Indo-American Chambers of Commerce (IACC) in association with KPMG.

Terminating India’s position as a beneficiary country under the Generalised System of Preference (GSP) will not only negatively impact export of goods from India to the US, but will also have adverse after-effects for American companies operating in India as their additional tax burden will grow by an additional $300 million every year.

Higher taxes could mean that American companies would have to resort to job cuts, scaling down investment plans and higher prices for consumers. These scenarios emerged from a recent roundtable meeting between industry and US government officials. The roundtable was organised by Western India Council of Indo-American Chambers of Commerce (IACC) in association with KPMG. Participants included heads of affected firms from sectors like textile, foreign banks, technology companies, insurance, manufacturing etc.

After the meeting, IACC stated, “Following will be the impact on US companies due to removal of GSP — will cost American businesses over $300 million additional tariffs every year; New tax that will result in job losses, cancelled investments and cost increases for consumers; and US companies do not get access to the Indian market”.

Earlier, around 2,000 products including auto components and textile materials could enter the US duty free due to GSP and India was the largest beneficiary of the programme in 2017 with $5.7 billion imports given duty free status.

“The GSP benefit conferred over the last three decades has significantly contributed to the growth of trade between India and US and the participants felt that such mechanism should continue for enhancing trade between the two countries,” IACC said.

The association suggested that for instance, the textile industry may evaluate setting up of processing units in the US, especially in areas like defence. This could be a win-win situation for both countries in a way that basic raw materials like yarn and fibre can be exported from India to US markets leading to value addition and employment in the US.

An external audit can be conducted of Indian companies wanting to set up units in US, to certify or rate the strengths/ capabilities of Indian companies to operate in US. The two countries should also collaborate and identify point of convergence to support the ‘Make in India’ initiative of the government. Some areas where convergence could be possible include agro processing, energy (both renewable and non-renewable), infrastructure and defence,” it recommended.

On data localisation, a key irritant between India and the US, IACC suggested that payment system operators (PSOs) should identify the flow of payments data in their payment process in order to align with the RBI’s requirements as applicable. Also PSOs should aim to segregate storage mechanism for domestic payments from cross-border payments.

It also recommended that contractual arrangements and periodic assessments of third party partners could be considered to ensure compliance of service providers, intermediaries, payment gateways, third party vendors etc.

On the issue of acquiring work visas in the US becoming increasingly difficult for Indians, IACC said that regulations in the new immigration policy will favour advanced American degree holders, leading to a reduction in regular H-1B visas approvals for Indians and hit the profitability of H-1B dependent Indian headquartered companies operating in the US. “This could lead to off-shoring of more jobs to India and other countries like Canada, Mexico, Guatemala (some of the countries wooing Indian business),” it added.

The association mooted for an Alternate Dispute Resolution (ADR) in co-operation with US for all kinds of trade between the two countries. “The Chamber can play a vital role in facilitating this between the two countries. The culture is present already in USA. India is progressively getting aware of the need to resort to this matter with co-operation and guidance of leading luminaries of USA. IACC can provide that valuable platform,” it added.

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