As was being expected, Barack Obama finally fulfilled his promise of formulating policies that will discourage “Outsourcing”, so that there are more job opportunities in the United States. So what is this policy?
Barack Obama finally initiated a bill that is still pending approval at the US Congress, is aimed at providing tax-cuts to companies that operate within US and imposing higher taxes and removal of tax benefits to US companies that outsource business to countries like that of India. While announcing this President Obama did not forget to make special mention of Bangalore. But is this policy going to work?
The United States of America is already reeling under severe economic recession. Quite a few of its top companies have gone bankrupt already. Will the US want its companies to incur more costs. Because outsourcing is here to stay. The cost-effectiveness that these companies see due to various cost factors in countries like that of India, including low cost labor, is something that they just cannot overlook.
This is what a report in the TOI had to say -
Domestic business process outsourcing (BPO) units providing services to the American companies will not be affected by the proposed
decision of US President Barack Obama to discourage outsourcing by imposing taxes, said global consultancy firm Ernst & young.
“The companies which outsource business to third parties will not be impacted (by the proposed tax move),” said Ernst & Young Tax Director Rajendra Nayak. However, he added, the US companies which outsource services from their own arms including wholly-owned subsidiaries might face the heat of Obama’s tax proposal, which is yet to be approved by the US Congress.
According to the E&Y expert, the captive outsourcing units of Americans will be impacted by the proposal as it would be required to adhere to the regulations of the home country. On the other hand, the domestic Business Process Outsourcing units provide services to companies from different countries, including America, will primarily be governed by Indian laws
and may escape the impact of changes in the US tax laws, Nayak said.
The step, he said, is directed at encouraging the US companies to do business in the US. However, the success of this objective would depend on comparative advantage that locations like India provide over the loss of revenue because of taxes back home in the US, sources in the Central Board of Direct Taxes (CBDT) said. The US companies would stop giving business to their subsidiaries in India only after evaluating if the benefit they have in India based on lower production costs
in the country is higher than the tax to be borne in the US itself, they said.
So if you look at the overall perspective, the impact of this policy on India is negligible. Hence we do not need to worry at this point in time and can be assured that indeed, “Outsourcing is here to stay”.