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Tax break withdrawal reeks of protectionism

NEW DELHI: Indian industry on Wednesday expressed disappointment at United States’ decision to deny tax breaks to American companies that outsource work to low-cost destinations and said the measure reeked of protectionism. U.S. President Barack Obama announced the measure during his address to the Joint Session of the U.S. Congress on Tuesday.

“The U.S. companies will have to weigh the cost of losing tax benefits against the efficiency gains, competitiveness gains and take a decision. We expect that the U.S. companies will choose a long-term efficiency route and continue to outsource on balance,” Federation of Indian Chambers of Commerce and Industry (FICCI) Secretary General Amit Mitra said.

Mr. Obama had said “we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.”

PHD Chamber President Satish Bagrodia said, “now, it appears that the U.S. is taking the lead in protectionism, which is against globalisation. This trend will be followed by all over the world and will support inefficient industries and efficiency will take a beating.”

India’s services industry contributes over 51 per cent of the country’s GDP, with IT and IT-enabled Services segment accounting for 10 per cent of the sector’s output.

Assocham President Sajjan Jindal said, “The entire world is reeling under pressures of global meltdown and assuming that protective measures like denial of tax benefits will work towards benefits of domestic economy, which will prove to be a serious mistake.”

He further said it would go against the spirit of competition and free market economies in which trans-national trade barriers were fading rapidly and the colour of the capital was becoming colourless.

On its effects on the Indian BPO sector, Mr. Mitra said, “However, if large number of companies choose not to outsource to save the tax benefits, then of course, IT and BPO services would be affected significantly.”

IT representative body Nasscom said, “It is heartening to note that the U.S. President has supported the need to avoid protectionism in his speech. This is not the time for protectionism but for global collaboration, if the world is to come out of this economic downturn quickly.” — PTI

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