India's $63 billion IT and BPO industry reacted with a mix of caution and anxiety on Wednesday after President Barack Obama told US Congress that he would stop tax breaks for US companies that sent jobs overseas.
Though its is not yet known what will be the exact tax implications on
American companies which outsource work to companies like Indian software firms, it is clear that they will have to pay more taxes if they cross a certain line.
“We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas,” said Obama.
For companies that outsourced work to India, this means they would be affected by the proposed move to do away with a provision of the country's tax code that allows them to pay lower taxes on profits repatriated from foreign shores.
“If the tax concessions are in the range of 3-4 per cent then there will not be much impact. However, if the tax implication is about 12-13 per cent then it will have an impact on Indian IT and outsourcing companies,” said a leading IT industry official who did not want to be identified.
Som Mittal, president of the National Association of Software and Service Companies, said IT outsourcing helped business efficiency for “vital competitive edge” to US firms, while leading firm Infosys echoed the sentiment.
“The US is a very open economy and a strong proponent of free trade globally. We are confident that the US will not take any measures, which might hurt its global competitiveness. We need to wait for more details to understand the import of President Obama's statement,” it said.
Industry chamber FICCI said “protectionist measures of any kind could deteriorate the situation further”—referring to the global slowdown.