Mr Jaitely should introduce tax reforms in ” Pricing of Body shopping contracts” to counter US and Australian VISA restrictions

US and Australia are talking of tightening their VISA rules to protect their domestic employment and in the process are hurting the profitability of Indian companies.

At this time it is necessary for Indian Government to come to the assistance of Indian companies in such a manner that the Indian companies are not unduly hurt by the unfair policies followed by the foreign Governments.

While US and Australia will hurt India through the VISA policies, EU will hurt India through its GDPR imposition which will increase the cost of data processing in India. Cumulatively, Indian IT industry is facing a challenge ahead which will reflect in lower employment in the Engineering sector in the immediate future.

Initially, I was under the impression that the Indian IT companies may be able to convince their customers to “Work from India” which would have actually increased the employment potential here. It would also prevent the brain drain and hence I considered that the Trump measures would actually benefit India.

However, from my preliminary interaction with some software professionals, it appears that the existing clients in US or elsewhere are unlikely to agree for the work to be shifted to Indian centers as an outsource contract so that the cost structure can be preserved in the existing contracts. They would like the work to be done at the existing cost parameters absorbing the higher costs of VISA or higher cost of local employment.

This is unfair but is a factor which industry competition alone can resolve. But Indian Companies donot seem to have the courage to take on their clients and would prefer to buckle under pressure. Considering the recent announcement that INFOSYS would create 10000 jobs in US, it appears that these IT companies will not use this opportunity to increase the employment opportunities in India. Instead they will become employment creating agencies for the US and Australia.

It is therefore necessary for Mr Arun Jaitely to find some means by which incentives are created for Indian companies to create jobs in India and disincentives for the IT companies preferring to work as job creating agents for foreign Governments.

At the same time, we need to create incentives so that foreign companies interested in creating employment in India are encouraged.

If the objective is recognized and accepted, I am sure that Mr Jaitely can find the means of incentivisation and disincentivisation through his next budget to ensure that more IT jobs are created in India than what is lost through the new immigration policies in USA and Australia.

The EU has indicated a new principle where by the “Global Turnover” is taken as a basis for imposing penalty for data breach or non compliance of GDPR regulations. If EU can dip into global activities of a company for data breach affecting the privacy of EU citizens, we should take a cue and take cognizance of companies both Indian and foreign making profits by creating jobs in India or in their own country in a proportion that shows discrimination.

In general, if a Company enters into a contract where by a work which can be done by a work force X of which x1 is employed in India and x2 is employed in another country of the contractor’s choice, the global employment potential of a contract and how it is distributed between the two countries should be taken note of in imposing a “Balancing Tax” so that the profitability of the contract is neutral to the distribution of employment expenditure between the two countries. If the global manpower expense under the contract is N and n1 and n2 are the expenses in each country, then the “Employment Balancing Tax” should be levied on the company in the proportion in which the manpower productivity is distributed.

I am aware that the proposal may be considered bizarre, complicated and even be questioned under the international treaties. But  we need to make US and Australia realize that we want to be fair in promoting free trade and only want freedom to shift the work to India if it is technically and functionally feasible.

Obviously, we cannot shift physical construction work from one country to another but the IT work can be shifted since today Virtual Workers can be as effective as physically present workers.  The proposal is therefore more directed towards IT companies and IT contracts.

Hence I suggest that “Anywhere Employment” should be the basic theme of all international contracts and any contract which forces a skewed distribution of manpower should be considered as a violation of free trade principles.

All contracts will have a “Body shopping” component where it can create jobs in either country without affecting the functionality of contract execution. We can therefore consider as in the case of “Transfer Pricing”, subjecting all International contracts of “Body shopping” to some taxation based control that brings a balance in the employment creation in both India and the contracting country.

Comments are welcome….


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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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