US lawmakers intend to make outsourcing difficult for MNCs
Lawmakers in the United States are contemplating to enact new legislation that would make it difficult for the American multinational titans like JP Morgan, GE, Citigroup and IBM to outsource their jobs as well as increase their employee strength in inexpensive countries, such as India and the Philippines. According to reports, the legislators intend to impose taxes on the earnings of these multinationals from global markets. At the same time, they intend to restore a number of outdated tax breaks for R&D in the country with a view to promote creation of new employment opportunities.
A financial website reports that the US House of Representatives have endorsed the ‘American Jobs and Closing Tax Loopholes Act’ last week enabling the Senate to hold ultimate debates on the issue sometime this month. The fact that the unemployment rate in the United States is presently staying close to 9.9 per cent has persuaded the legislations to initiate actions against conglomerates that are generating employment opportunities in inexpensive foreign locales, while retrenching employees in their own country.
It is anticipated that the move to plug the loopholes that has made it possible for the MNCs to outsource their jobs as well as create new employment opportunities overseas will cost approximately $112 billion. The final discussions of the proposed Act by the US Senate are scheduled for June 7 – following the break after the Congress’ Memorial Day. However, industry experts are of the view that the proposed Act aimed at creating more jobs in the United States will not have any express bearing IBM, Citigroup and GE, which includes India’s $60 billion outsourcing industry.
According to NASSCOM, the nodal body for Indian IT and ITeS industry, Som Mittal said that the proposed US Act is an issue of that country rather than something to do with the outsourcing business. He was of the view that the competitiveness of some of the US companies may be affected by the legislation, conditional to the taxation rates. Citing an example, Mittal said that GE will be taxed on its earnings from the European nations where the rate of taxation is approximately 15 per cent. In fact, the proposed legislation could prove to be a ‘double whammy’ for some US multinationals. On the other hand, industry experts contend that nationalist steps like this are basically imprudent since several US firms generate considerable revenues from overseas and such measures by the US federal government may result in repercussions in other markets.
Experts cite examples of Citigroup which received 52 per cent of its revenues from overseas nation in 2007 with the companies banking operations spread in 100 countries and almost 60 per cent of its employees based outside the US. Even during 2008, the firm’s revenue generation from outside the US was as high as 74 per cent despite the financial crisis faced by it. Keeping this in view, Mittal said that the proposed legislation would not affect the outsourcing industry and in case it does, it will be mainly involving the offshoring of manufacturing activities.