US anti-outsourcing plans won't hit India: lobby group

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by Staff Writers
New Delhi (AFP) May 5, 2009
A US plan to clamp down on outsourcing could make many American companies uncompetitive but would not affect India's flagship IT services industry, a top Indian business body said Tuesday.

US President Barack Obama, decrying "egregious" tax abuses, announced Monday plans to save 210 billion dollars by squeezing US firms' ability to profit from outsourcing jobs and offshore havens.

The new tax proposals aimed at addressing the tax rate differentials across the world "would impact American headquartered companies with overseas operations", India's leading outsourcing lobby Nasscom said.

But Nasscom said the impact on global companies working in India would be "marginal" as they already pay an income tax rate in the country of 33.9 percent while the US rate was around 35 percent.

"The effect will not be significant on India," Ameet Nivsarkar, vice president for global operations at the National Association of Software and Services Companies (Nasscom), told AFP.

Obama's plan is "not at all targeting" India's outsourcing giants like Tata Consultancy Services, Wipro, Infosys and other companies, Nivsarkar added.

India, which already holds at least 50 percent of the global outsourcing market, has become the world's back office as Western firms set up call centres, number-crunching and software development outlets to cut costs.

But while India would not suffer from Obama's proposals, Nasscom said American companies could.

Other nations, especially in Japan and Europe, are moving to a territorial system that taxes only corporate profits earned within their borders and the latest US proposals are contrary to the trend, Nasscom noted.

"This may actually end up reducing competitiveness of US companies with global operations when compared to their European and Japanese counterparts," the National Association of Software and Services Companies," Nasscom said.

The US president has singled out Bermuda, the Netherlands and Ireland, noting that "nearly one-third of all foreign profits reported by US corporations in 2003 came from (those) three small, low-tax countries".

Overall, according to the Obama administration, US firms exploit tax loopholes and shady practices to pay an average of two percent on their foreign profits, costing the US taxpayer tens of billions of dollars a year.

Corporations in the US have assailed the plan, arguing it would subject them to far higher taxes than their foreign rivals and ultimately endanger US jobs.

"Most large American companies have more than 50 percent of their revenues coming from markets outside the US and would be affected by the proposed tax reforms," Nasscom said.

Leading Indian industry group FICCI echoed the criticism, saying it ran "counter to the interest of US corporations desirous of cost-efficient operations across the globe."

"In this era of globalization, a much more meaningful measure would have been to evolve a consensus on harmonizing the national taxation systems, said Harsh Pati Singhania, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).

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