The US is planning a new strike to hit the 250 billion dollar Indian IT industry, it's the HIRE bill. The US’s proposed Halting International Relocation of Employment Act could impact India's IT industry and put millions of jobs at risk. But what is this bill all about and why is it brewing a storm in the global outsourcing market? Here’s all you need to know.
What is the HIRE Act?
The HIRE Act was recently proposed in the U.S. Senate by Senator Bernie Moreno. The bill aims to discourage U.S. companies from outsourcing those high-skilled tech jobs overseas, especially to outsourcing hotspots like India.
Big changes proposed
The bill proposes 2 major changes which could impact both the US companies and the ones they outsource the jobs to.
- 25% tax on payments to foreign workers: As per the bill, US companies paying foreign workers (say an Indian IT professional) for work that benefits customers in the United States, will be taxed 25% on those payments.
- No tax deductions for outsourcing expenses: The double whammy of the bill is that U.S. companies will not be able to deduct these outsourcing payments from their taxes. This implies that outsourcing for US companies will become more expensive because companies won’t be able to reduce their taxable income by claiming these costs.
Why a Domestic Workforce Fund?
All tax money from the HIRE Act won’t just sit with the government. It will go into a Domestic Workforce Fund. The fund will be utilised to train and start apprenticeship programs for U.S. workers so they can take up the high-skilled tech jobs that are otherwise outsourced. This is a way to bring back and keep jobs in the U.S. and minimise the dependency on the foreign IT market.
What impact could this have on Indian IT firms?
India’s top IT companies, including TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra get 50% and 65% of their revenue from their American clients. America is one of the largest market for Indian IT exports. IT brings billions of dollars in revenue to the Indian IT giants.
If the HIRE Act passes, the 25% tax and no tax deductions for American companies outsourcing to Indian firms, the cost of outsourcing could rise substantially. If outsourcing becomes too expensive, U.S. companies might choose to reduce contracts and projects for Indian firms.
Cutting on outsourced jobs could lead to fewer job opportunities in Indian IT companies. Also, American firms might double down on in-house hiring or go for alternative locations with lower levies.
Is it time to panic?
Not quite. Many experts believe the bill won’t have an easy way. Over 70% of Fortune 500 companies, such as Microsoft, Citi, and JP Morgan depend on Indian IT talent to stay ahead in competition. They are lobbying hard against the bill as it will harm their business margins as well.
Also, the U.S. workforce currently isn’t qualified to replace the jobs outsourced overseas, especially in IT services. So, while the HIRE Act has the potential to reshape the outsourcing market, it’s far from a done deal.
