Click to play videoBangalore: US President Barack Obama's threat to stop tax breaks to companies shipping jobs abroad sent IT stocks into a spin. But the industry says there's little cause for worry. The threat is more to do with reducing tax differentials for US companies with overseas subsidiaries.
Vice President (VP), Nasscom , New Delhi, Ameet Nivsarkar said, “The statement that Barack Obama has made is for tax breaks for American companies and its about the new tax code that the administration plans to roll out which would bring in line companies that invest in low tax destinations/geographies taking advantage of the difference between the US tax rate and those of different countries. It is not about outsourcing or offshoring of the IT or BPO sector so it would not impact the Indian companies or the Indian sector in any way.”
Experts suggest that companies will continue to outsource because it makes business sense. With more emerging markets opening up, there's enough growth to offset any impact of tax breaks.
IT service companies say current contracts will keep business here for the next 2-3 years. Future contracts could be more shaky.
Obama's threat of protectionism is more of a worry. But this could lead to a backlash in other markets, at a time when US companies are looking for revenues. In May last year, Obama had made the same threat. He's still to make good on it. Ultimately, companies will weigh tax benefits against cost savings.
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