IT professionals in Bangalore fearing US President Barack Obama’s tax proposals can breathe easy. Obama cited Bangalore as an example in his Monday speech explaining the benefits of his new tax proposal. But the proposal, if implemented, will not have much impact on the Indian industry.
Reason: the proposal hinges on tax rate differentials between the US and other countries and this differential in the case of India is just 1.1 per cent.
As per current laws, a US-based multinational company can avoid paying taxes on profits it makes abroad until it brings the money back to the US.
According to an industry analyst, Obama’s proposal means that these multinationals will have to pay taxes on the profits earned from income through overseas subsidiaries --- even if the profits are not repatriated back to the US.
In India, US companies that earn profits are subject to a tax rate of 33.9 per cent. This is only 1.1 per cent less than the taxes a company has to pay in the US (35 per cent).
“Prima facie, the proposals appeared to be aimed at addressing the tax rate differentials that exist across the world,” said Som Mittal, president, NASSCOM. “So the impact will be minimal.”
“The new tax proposals have nothing to do with outsourcing,” said Pramod Bhasin, president and CEO, Genpact.