&imwidth=800&imheight=600&format=webp&quality=medium "How the US bill proposing a 25 per cent tax on outsourcing impacts Indian IT giants")
The United States is planning to propose a bill that allows taxing American firms 25 percent for using foreign outsourcing services. The bill, if passed, will hit the Indian IT sector, which provides IT services to many bigwigs in the US market. It is expected that the bill will not likely pass in its current form. However, it might set the tone for how American companies view outsourcing.
US Republican Senator Bernie Moreno introduced the HIRE Act last week, which proposes taxing companies that hire foreign workers andignore Americans for jobs. He proposed that the revenue generated from levying these taxes should be used to develop the US workforce. The bill also seeks to bar firms from claiming outsourcing payments as tax-deductible expenses.
The Indian IT industry, worth $283 billion, has been thriving for three decades and is a part of India's remarkable growth story. India's IT giants exportsoftware services to foreign clients. However, the industry is currently struggling as its US clients have deferred non-essential tech spending due to inflation and Donald Trump-induced tariff uncertainty.
What experts said about outsourcing tax
EY India's compliance head, Jignesh Thakkar, told Reuters that the HIRE Act proposes sweeping changes that could alter the economics of outsourcing and significantly increase the tax liability associated with international service contracts.
He said if it passed, the bill could take the tax liability on outsourcing to as high as 60 per cent.
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Arun Prabhu, partner at Cyril Amarchand Mangaldas, said that the bill seeks to make companies less competitive and profitable by levying an artificial cost.
HFS Research President Saurabh Gupta, talking about the impact of the proposed bill, said that clients will simply take longer to sign, longer to renew, and longer to commit "transformation dollars".
Alcorn Immigration Law CEO Sophie Alcorn said the bill will face backlash in the US, particularly from companies that rely on outsourcing.
She said there could also be litigation to challenge several aspects of the bill if it becomes law.
Everest Group partner Yugal Joshi said new setups and expansion may be impacted if the proposed tax is imposed.
The experts, however, pointed out that the paucity of human capital in the United States can only be addressed through outsourcing.