Impact of New Tax Proposals by Obama Administration on Indian IT/ITES Industry

M. Narsimha Rao, President, HYSEA (Hyderabad Software Exporters Association)

Hyderabad, May 6, 2009 – “We in the IT & ITES/BPO industry are in the process of understanding the new tax proposals by President Obama and its impact on our industry’s prospects. On first reading, the proposals appeared to be aimed at addressing the tax rate differentials that exist for companies, which run operations globally, and we think this will impact US headquartered companies with overseas operations. The current proposal aims to raise the Tax revenues for the US Government and also take away some incentives for the industry when they work outside of US.

In our understanding, the tax reforms announced yesterday have only just been proposed and there will be extended debate on them before they can be implemented. We also expect to get greater clarity along with some changes before its finally implemented. It is important to note that most large American companies have significant (more than 40-50%) revenues coming from markets outside the US and would be affected by the proposed tax reforms, if implemented. On the face of it, the proposed legislation is aimed at creating barriers for Global trade and in this age of a flat world appears counter intuitive and its our view that this will actually hurt the US industry as also its society in the long run.

It is our belief that the India IT & ITES/BPO industry adds far greater value than just the Tax incentives, which the US Corporates enjoy and as such expect the impact on us to be minimal. However, as an industry we need to continue to add value to our Customers’ business and work to nullify any cost disadvantage in engaging us (by Tax incentives or otherwise). Beyond the taxes, our view is outsourcing delivers multiple undeniable benefits: cost advantage, availability of talent, improvement in process, higher productivity, superior quality, additional value delivered out of innovation-led work, time zone advantage, etc. We believe investors and clients see their Globalization plans as more strategic and beyond short term and marginal tax dollars.

About HYSEA – Hyderabad Software Exporters Association (HYSEA) is a registered apex body with more than 300 members representing software industry in AP under the Andhra Pradesh Societies Registration Act.

For further details contact Somsekhar/Deepti, Perfect Relations @9000111823/9849758020