Tax moves will make Indian IT cos more competitive

BANGALORE: India���s home grown IT companies actually have something to cheer from President Barack Obama���s tax plan, which, if it goes through, will make the likes of TCS, Infosys and Wipro more price competitive against their US counterparts like IBM, HP and Accenture.

This is because the plan imposes huge new tax burdens on American technology companies. An analysis by The Associated Press estimates that collectively, HP, IBM, Cisco, Microsoft and Google lowered their tax bills by a combined $7.4 billion in their last fiscal year by taking advantage of lower tax rates outside the United States.

���Through the years, these five companies have avoided US income taxes and foreign withholding taxes on a combined $72 billion in undistributed earnings from their foreign operations. By reinvesting their earnings overseas, American companies insulate themselves from much higher tax rates had the money been made in their home country,������ an AP report says.

Google, it says, would have been hit with an effective tax rate of 45% instead of 28% last year if it hadn���t been able to capitalise on lower rates overseas. Without the lower foreign rates, Google���s 2008 tax bill would have been higher by a little over $1 billion. HP, according to AP, reaped a $1.8 billion benefit in its fiscal 2008 from lower foreign tax rates while Cisco and Microsoft each saw benefits of over $1.6 billion. IBM���s foreign tax advantage last year totalled about $1.3 billion, says AP.



���It would be like an earthquake for high tech,������ Carl Guardino, CEO of Silicon Valley Leadership Group, an industry trade association, has been quoted as saying. ���On a Richter scale of 1 to 10, this would be a 12.������

Analysts say the fresh tax impositions would mean that American IT service providers will per force have to increase their billing rates. And if those rates go up, Indian companies become correspondingly more competitive in any IT project for which they are bidding against American competitors.