US President Barack Obama on Thursday once again targeted outsourcing of jobs overseas by American companies, increasing the pressure on local firms in an attempt to secure some benefit ahead of the crucial November elections in his country.
Obama, speaking at a rally in Parma, Ohio, the state which banned outsourcing of work overseas by government departments, said he remained firm on ending tax breaks for American firms that sent jobs abroad.
“One of the keys to job creation is to encourage companies to invest more in the United States. But for years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries,” Obama said.
His reference to ending tax breaks does not mean that US companies get tax breaks for shipping jobs overseas. Instead, the US tax code allows them to keep the income they earn overseas without incurring a tax liability.
In order to encourage more local hiring, Obama also gave a speech in January this year where he suggested a $5,000 credit for every job a company created (net new job) and an overall limit of $500,000 credit per company for availing such benefits.
While there is still no specific proposal elaborating how Obama plans to end the tax breaks, such measures could mean that large outsourcing customers such as GE and Citibank might have to pay certain taxes on their income from international markets, making it less attractive for customers to send IT projects to cheaper offshore locations such as India. To this end, Obama is proposing reforming the taxation of the overseas income of multinational corporations.
Under current law, firms don’t pay taxes to the US government on income earned abroad until they bring the money back to the United States, Ms Altshuler added. Many experts say that ending these tax breaks will not stop outsourcing. The economic logic of sending jobs to low-cost centres is so compelling that companies will keep doing it, they add.
“Let’s face it — companies will do whatever it takes to remain competitive, and offshoring of non-core activities is an important tool. We are already struggling to rival cheaper offshore locations in manufacturing, and sending IT projects to India will help us remain competitive,” said a senior official at one of the top US tech firms. He requested anonymity.
while Obama’s policies could help the government reduce its unemployment costs, the companies would not just hire to get the credit, but also try and balance it with actual economic need.
“The proposal is only a part of a larger proposal that includes spending on infrastructure in the US, creating a permanent credit for R&D expenditures, and giving a 100% write off for capital improvements in the year they are made. Also, the potential to reduce tax revenue overall given that only those who would hire anyway will get the benefit is a significant concern.”
Nevertheless, the development is unwelcome and unpleasant for the $50-billion Indian outsourcing industry, which has had a hugely successful run since the millennium bug, or the Y2K problem.
More than 3 million jobs have been created and a huge infrastructure has sprung up to take care of the myriad needs and demands of the US companies. The industry has faced bad press since the Obama administration took office in January 2009 with the president himself declaring last year that he wanted jobs in Buffalo and not Bangalore.
Last month, the US Congress approved a measure to increase fees for the H1B visa applicants in order to raise money for building a fence on the US-Mexico border. About 65,000 Indians apply for H1B visas every year. The Ohio ban was also announced sometime after that.
The end of tax breaks for offshoring could discourage multinational firms and customers such as Citibank to have large offshore delivery centres in the country. Some local officials, such as those in Nasscom, believe that Obama is simply trying to rally his base and that the rhetoric is dictated by political needs. Unemployment in the US is at 9.6%. It is higher than the national average in many states.
“Instead of tax loopholes that incentivise investment in overseas jobs, I’m proposing a more generous, permanent extension of the tax credit that goes to companies for all the research and innovation they do right here in Ohio, right here in the United States of America,” Obama added.
Nasscom, which is on the defensive ever since the US Congress passed a controversial legislation increasing visa fees for funding the country’s Mexico border security programme last month, termed Obama’s statement as expected election rhetoric and downplayed any potential impact for Indian tech firms.
“The comments focus on the need for a domestic taxation policy shift that has no direct impact on the industry in India. His (Obama’s) remarks explicitly target the tax benefits enjoyed by US-headquartered companies who are presumed to retain their profits overseas and do not repatriate, thereby taking advantage of different tax rates prevalent across the world,” said a Nasscom spokeswoman.
Ms Altshuler argued that by investing abroad, US multinationals are not necessarily cutting jobs in the U.S. “Recent economic research suggests that investing abroad leads to more investment and employee compensation in the United States,” she had said. US companies have to pay almost 35% corporate tax on income generated in the country. One of the major benefits that US companies receive is that for income generated offshore, the taxes on that income can be deferred as long as that income is not repatriated to the US.
“While changes in the tax code are bound to create different economics for service providers, the real issue at hand is the fact that Indian heritage IT and ITES service provider firms will not be able to avoid the need for true globalisation,” said Sid Pai, managing director and partner at outsourcing advisory firm TPI India.
And such tax breaks could also benefit Indian companies setting up local operations. “If an Indian firm hires people onshore, does that not also qualify? Not sure how that would be looked at in a final proposal, but a level playing field would require that this credit would also be available to foreign companies that create US jobs.”
Two of my favorite ingredients, peas and paneer come together to make a new favorite - Peas and Paneer Pulao...! All diets and resolutions go in the dumps when I'm faced with some paneer and rice, I just can't help but have some. So of course, I only make this once in a while, but when I do, it is totally worth it!
Take a deep pan, heat some oil and add the jeera, cardamoms, and the cinnamon sticks. When they sizzle, add the onions,and the ginger-garlic paste. Stir really well and now add the biryani/pulao masala. Add the Peas, and the veggies you have. Stir fry for 2-3 minutes and add the yogurt, mixing it well. Don't overcook the veggies, because you'll be adding the rice.
