Mr Obama's new tax plan will not hurt Indian IT

After doing some research, I was able to find what large section of both corporate India and US believe on Obama's New Tax plan......

Tax Point of View

President Obama said that his new tax plan will do a lot of things including create more US jobs. Obama said that the government would offer a tax cut to companies that do their research and development in the United States. And that will "jump-start job creation," he said.

However, most tax policy experts differ with the US Prez here. They feel that the proposals, if implemented, could raise revenue for the government but are unlikely to boost US jobs.

Eric Toder, a fellow at the liberal Urban Institute and former assistant secretary of tax analysis for the Treasury Department, wrote in the Tax Policy Center's blog Tax Vox, "Employment is determined by overall demand for goods and services, not by targeted tax and spending provisions."

It will hurt the competitiveness of US MNCs

Most experts feel that the President Obama's tax plan will badly hurt the competitiveness of US MNCs. Critics also contend that increasing the tax bite on US companies will put them at a disadvantage with their foreign competitors.

As Indian software body National Association of Software and Service Companies (Nasscom), said, "This may actually end up reducing competitiveness of US companies with global operations when compared to their European and Japanese counterparts."According to analysts what Obama’s new tax plan fails to gauge is that US tax policy is not the only factor a company weighs in deciding whether to invest overseas.

Why American Companies will prefer Outsourcing

As Aparup Sengupta, chief executive officer of BPO company Aegis, said, American companies save 60%-75% by outsourcing their back office operations to countries like India. The savings are higher if high-end operations are outsourced.

Sengupta said that in general, a service which costs around $48 per seat per hour in the US is accomplished at $11-12 per seat per hour in India. So, US companies save almost 75% by outsourcing their activities to India. The savings in high-end BPO services are even higher as the fixed cost in all the cases remains the same and the only increment is the marginal increase in wages of trained manpower.

Shortage of talent in the US

"It is wrong to assume that we are outsourcing for evading taxes - we continue to hire more workers here because traditionally, it's been very difficult to find professionals with adequate skills in the US," said a senior executive at one of the captive centres who did not wish to be identified because his company does not allow media interviews.

Also, according to tax experts, companies do not move jobs to India because the tax rate is lower; they do it because labor costs less.

It seems many past attempts to pass similar laws have failed. This proposed tax plan has met with severe criticism from a large number of US companies. Business groups in the US have assailed the proposal, arguing that it would subject them to far higher taxes than their foreign competitors must pay and ultimately endanger US jobs.........