The new HIRE bill in America has caused a stir in the Indian IT sector. This bill proposes a 25% tax on foreign outsourcing, restrictions on tax deductions, and provisions for a Domestic Workforce Fund. Companies like Tata, Infosys, Wipro, HCL, and Tech Mahindra face challenges as they earn 50-65% of their revenue from US clients.
U.S. 'HIRE' Bill: The HIRE bill, introduced by Republican Senator Bernie Moreno in the U.S., has generated concern within the $250 billion Indian IT sector. This legislation is designed to curb foreign outsourcing and promote local jobs by imposing hefty penalties on American companies. Major Indian IT firms such as Tata Consultancy Services, Infosys, Wipro, HCL Tech, and Tech Mahindra, which derive 50-65% of their revenue from the United States, will be directly impacted by this bill.
What is the HIRE Bill
The full name of the HIRE bill is the "Halting International Relocation of Employment Act." This bill is designed with the objective of preventing American companies from outsourcing jobs overseas and encouraging them to employ domestic workers. The bill includes three main provisions.
Firstly, according to the bill, a 25 percent tax will be levied on outsourcing payments. This means that any American company or taxpayer making a payment to a foreign company or individual for services that benefit consumers in the U.S. will face a significant tax on that payment.
Secondly, the deduction of outsourcing expenses from taxable income will be eliminated. This will impose an additional financial burden on companies sending work overseas.
Thirdly, the revenue generated from this tax will be deposited into a new Domestic Workforce Fund, which will be used for employing and upskilling American workers.
Impact on Indian IT Companies
India has long been a hub for IT outsourcing. Major companies like TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra earn 50 to 65 percent of their total revenue from North American clients. The services offered by these companies include software development, system integration, cloud management, and Business Process Outsourcing (BPO).
Indian IT companies provide services to many Fortune 500 companies such as Citigroup, JPMorgan Chase, Bank of America, Pfizer, Microsoft, and Saint-Gobain. If the HIRE bill is enacted, these companies may face additional taxes on deals with their American clients.
Potential Long-Term Impact
According to experts, if the bill is passed, Indian IT companies' revenues will come under pressure. American companies might reduce outsourcing to cut costs. This could affect the number of jobs and the volume of projects.
Furthermore, Indian IT companies may have to alter their business models. They will need to adapt their services to new pricing and tax structures for American clients. Some companies might increase partnerships with local employees, while others may strategically redesign their U.S. operations.
Impact on Market and Investment
Volatility can also be observed in the stock market for Indian IT companies. Investors may sell shares or reconsider new investments in light of the potential effectiveness of this bill. If the HIRE bill remains in effect for a prolonged period, the additional tax burden on American companies will increase, leading to a decline in outsourcing.
