Taxing issue
The United States does not collect corporate tax on unrepatriated overseas earnings. As a common practice, companies in the USA get into the offshoring business, keep the money abroad and certify in its accounts that the money is invested overseas. This way, the companies do not need to pay high taxes in their country. This encourages the US companies to invest in developing countries like India and China, where foreign corporate tax rates are lower. This, according to the critics of business process outsourcing, has given rise to unemployment in the country.
In one of her speeches, Hillary assured all those jobless Americans who had confidence in her leadership, that she would put an end to all the giveaways in the form of tax breaks and would prevent every single penny of theirs from being given to people who ship their jobs overseas. Obama had seconded her by further promising to reward the businesses that invest in the USA with the money thus saved.
The fallout
If this anti-outsourcing enterprise materialises, the countries flourishing on the US outsourcing might need to explore further or alter their course. The Indian BPO industry as a major beneficiary of US outsourcing, may also have to explore alternatives. The outsourcing industry not only employs millions in India, but has also done miraculously well for the Indian stock exchange.
United we stand
Majority of experts in the field believe that the Indian BPO industry would remain unfazed by this chaos. They claim that the industry has got several options other than the US. Discussing its effects some however, contend, if the tax breaks in the US end, it will certainly affect the employment opportunities in the BPO industry in India.
But if we think of the industry as a whole, the impact would be trivial. Sampat Iyengar ex-COO of KCS BPO says, “It’s not just the tax breaks that encourage outsourcing jobs from the US. Higher education in the USA is expensive and not many people can afford it. It’s mostly the technical jobs that are outsourced. More than ending the tax breaks, the leaders must focus on the education system. No, the industry does not feel threatened at all!”
Former vice-president of Aviva Global Services, Bangalore states, “Important structural changes in the global economy are motivating recent outsourcing trends and not just the tax code. We are hopeful that even if these tax breaks are scrapped, the US companies would still invest in India, as today outsourcing is not a luxury but a necessity.”
India Inc fights back
An advertisement was placed in the Chicago Tribune which read that the giants like Tata group, Mahindra USA, ITC Kitchens, and Ranbaxy have contributed to the US economy and have produced thousands of jobs in the USA. It claimed that the USA’s exports which is growing at 12 per cent every year, currently accounts for 40 per cent of its GDP. So why cry wolf over outsourcing?
Industry body FICCI and the commerce ministry were behind the placement of this ad.
A study shows, about 1,00,000 to 1,50,000 jobs are outsourced to India, while about six million jobs are outsourced to the US from India. Experts feel that contrary to the myth, if the US government bans outsourcing of jobs, they actually have to subsidise jobs in the country, and as a result, the US tax payers would end up paying more taxes.
NASSCOM has predicted that the BPO industry will touch $50 billion by 2012. Currently, at $11 billion, the industry provides jobs to over 7,00,000 people across 25 countries. The big players in the industry say it is not easy to shake the BPO industry by merely ending tax breaks in one country.
Vice-president Infosys BPO Swaminathan D says, “We are not new to such election gimmicks. We have witnessed this in the past and once the elections were over, we had also seen completely converted politicians. Everyone must do what is right for improving competitiveness so that the economy in a free trade evolves. They all understand this that is why they are the leaders.” He added further, “The businesses today are closely integrated across the globe. If a certain country wants to operate on its own, there are chances of it being out of the job in this globally competitive world, in the long run. These long term benefits which are in the interest of the industry as a whole, will certainly outdo the short-term publicity gimmicks.”
This burning issue of outsourcing industry was the focus of discussion at the recently held Outsourcing World Summit 2008. Most of the professionals who attended the event believed that outsourcing is vital not only for the developing countries but also plays an equally important role in enhancing the growth of the US businesses. International Association of Outsourcing Professionals (IAOP) Chairman Michael Corbett said, “The business challenges over the next decade are going to be very different from what we’ve seen so far and the companies that manage to weave a powerful network of global partners through outsourcing will be the winners.” Considering this aspect there are maximum chances that whosoever wins the presidential election would reconsider the issue of end of tax breaks.
-- Cholena Deb |
