India's IT sector nervous as US proposes outsourcing tax

Haripriya Suresh and Urvi Manoj Dugar

Source Link

BENGALURU, Sept 11 (Reuters) - India's massive IT sector faces a lengthy period of uncertainty with customers delaying or re-negotiating contracts while the U.S. debates a proposed 25% tax on American firms using foreign outsourcing services, analysts and lawyers said.

The sector is likely to be on the receiving end of a bill which, though unlikely to pass in its nascent form, will initiate a gradual shift in how big-name firms in the world's largest outsourcing market buy IT services, they said.

Still, with U.S. firms having to pay the tax, those heavily reliant on overseas IT services are likely to push back, setting the stage for extensive lobbying and legal battles, analysts and lawyers said.

India's $283 billion information technology sector has thrived for more than three decades exporting software services, with prominent clients including Apple (AAPL.O), opens new tab, American Express (AXP.N), opens new tab, Cisco (CSCO.O), opens new tab, Citigroup (C.N), opens new tab, FedEx (FDX.N), opens new tab and Home Depot (HD.N), opens new tab. It has grown to make up over 7% of GDP.

However, it has also drawn criticism in customer countries over job loss to lower-cost workers in India.

Last week, U.S. Republican Senator Bernie Moreno introduced the HIRE Act, opens new tab which proposes taxing companies that hire foreign workers over Americans, with the tax revenue used for U.S. workforce development. The bill also seeks to bar firms from claiming outsourcing payments as tax-deductible expenses.