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US visa fee hike: The monetary impact and why it concerns India

The recent visa fee hike by US is expected to bring up IT cos’ client charges. HT explains the issue, and why it concerns India.

business Updated: Jan 13, 2016 13:50 IST
B Sundaresan
B Sundaresan
Hindustan Times
United States,US visa,H-1B
Raising fee on H-1B and L1visas can be considered a “tax on business” for companies hiring non-US nationals, which would therefore prefer to hire US citizens.(Illustration: Abhimanyu Sinha)

What are H-1B and L1 visas?

H-1B and L1 visas are non-immigrant visas used by companies to employ foreign nationals in the United States temporarily. H-1B is meant for persons in specialty occupations and L1 is meant for intra company transfers. The former is used when non-US-based companies recruit people for posts in the US and the latter is what happens when Indian IT professionals are given “on-site” stints in the US. One L1 visa is issued for five H-1B visas.

Why was the fee hiked?

According to the Consoli-dated Appropriations Act 2016, the visa fee on H-1B and L1 visa have been hiked to $4,000 (Rs 2.68 lakh) and $4,500 (Rs 3 lakh) respectively in order to shore up revenues for the 9/11 Response and Biometric Exit Fund. This will be applicable on companies that employ more than 50 people in the US and 50% of the employees are foreign nationals.

But why were only H-1B and L1 visas targeted?

US has over 20 non-immigrant visas – with many subtypes – and as many immigrant visas. H-1B and L1 visas accounted for only 2.35% of the total non-immigrant visa applications. Tourist visas had the highest share at almost 65%.

Herein lies the issue of employment. Republican US Presidential candidate Jeb Bush in Council of Foreign Relation report observed: “The H-1B visa programme has also been used heavily by Indian companies bringing over strictly temporary workers to support their business model of outsourcing back-office work for US companies”.

Raising fee on H-1B and L1visas can be considered a “tax on business” for companies hiring non-US nationals, which would therefore prefer to hire US citizens. Ron Hira of the Economic Policy Institute estimated that Americans lost over 12,000 jobs to H-1B workers.

Why are Indian IT companies concerned?

Because they are the biggest users of the H-1B and L1 visas (see table) and have to foot the fee bill. India’s three biggest IT companies Infosys, TCS and Wipro roughly employ around 15,000 people each in the US. These companies rely heavily on H-1B visa workers as the salary demanded is less. Last year the US government started investigations against Infosys and TCS after US workers were allegedly laid off to be replaced by H-1B workers. Wipro has also faced wage related law suits.

What is the monetary impact?

President of industry body Nasscom observed: “Visa costs for domestic IT industry could go up from $100 million to $400 million annually”. The problem with H-1B (or L1) visas is that the fee paid is not refundable. Also apart from the $4,000 (or $4,500) fee, there are additional charges including those for hiring an attorney. This can take the cost up to the $7,500-$10,000 range. At the 2014 refusal rate of 20%, this means for one in every five applications, the fee must be foregone.

Why are visas refused?

Apart from stringent visa conditions there is a cap on the number of H-1B visas that can be given in a year. After the global financial crisis, H-1B quota has been fixed at 65,000 for foreign nationals and 20,000 for people with masters degrees from US universities. The final visas to issued are selected through lottery.

However, the visas offered are significantly higher as people joining research centres and universities are exempt from the cap. In 2014, over 160,000 H-1B visas were issued.

What happens next?

Commerce minister Nirmala Sitharaman has said that she has taken up the issue with US authorities and has asked them to look into it with all seriousness as it can hurt India. Even more so as India is working towards simplifying its trade norms. But since, the act has been cleared and will be applicable till September 2025 an amendment will have to be passed next year. Meanwhile, there have been reports that IT companies may raise client servicing costs to compensate for the costs.

Also, a remote, yet major fall out of such moves may be the shifting of big companies to neighbouring countries with laxer visa norms. As Martin Hoffman observed in the Wall Street Journal, “The increased levies are great news for countries such as Canada, Brazil and Romania, which have for years aggressively pursued US businesses to move their IT operations overseas.”

First Published: Jan 13, 2016 13:43 IST