Obama's tax plan to hit Indian BPOs

[dwarakesh]

India's BPO sector will take a beating with the United States' economic revival plan not to translate into tax breaks for companies outsourcing jobs.

"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," Obama said in his first address to the joint session of the US Congress.

"It is heartening to note that the US president has supported the need to 'avoid protectionism' in his speech. This is not the time for protectionism but for global collaboration, if the world is to come out of this economic downturn quickly. US companies have been the leaders in international trade, and in 2008 more than 50 per cent of the revenues of the leading companies came from outside the US market," said India's software industry body Nasscom.

Industry chamber Assocham, however, expressed serious concern over the Obama administration's decision to deny tax benefits to US companies that outsource their jobs, adding that it would prevent free flow of goods and services under the WTO regime.

A spokesperson from a leading BPO firm said that this step would not have a major impact as taxes were just a small component of the total savings.

The industry reacted in a similar manner when the US Senate voted to prohibit banks bailed out by the government from replacing laid-off workers with foreign guest workers (read H-1B workers).

The top-10 H-1B visa list is made up largely of India-based firms, including Infosys Technologies, Wipro and Satyam Computer Services. And the deadline for companies to request petitions for new H-1B visas is April 1. Both the US (read Silicon Valley) and Indian companies have repeatedly stressed the need to raise the cap, which was reduced from 195,000 to 65,000 two years ago.

"The technology sector is a part of the global value chain and while affected by the downturn, it is still expected to grow, according to reports by leading analysts. Unemployment in this sector continues to be the lowest," added Nasscom.

Meanwhile, Obama has announced that tax cuts for America's wealthiest — who constitute 2 per cent of the entire population — will end.

"In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2 per cent of Americans," Obama said in his maiden speech to the US Congress on Tuesday.

Source: Business Standard