Industry Bodies Criticize US Protectionism

by CXOtoday Staff    May 05, 2009

President Obama’s continuing protectionist policy has once again raised the ire of Indian industry bodies.

Reacting to the statement made by President Barack Obama on ending tax breaks for US companies that invest and create jobs abroad - Harsh Pati Singhania, president of FICCI said, Such a move if implemented would constrain US companies with regard to production, distribution and marketing offered in different parts of the world.

"In the era of globalization, a much more meaningful measure would have been to evolve a consensus on harmonizing the national taxation systems", said Singhania. 

While this move would certainly have some impact on US investments abroad and into India, in the long run this would only run counter to the interest of US corporations desirous of cost efficient operations across the globe, said he.

NASSCOM, in a press statement, said President Obama s new tax proposals are aimed at addressing the tax rate differentials that exist across the world, — and if implemented would impact American headquartered companies with overseas operations. Current laws in the US state that any income that is earned outside the U.S. is not taxed until such time it is brought back into the U.S. - the Obama proposal aims to alter that to raise the revenues of the US government.

A possible solution, according to NASSCOM could be how other nations, especially in Japan and Europe, are moving to a territorial system that taxes only corporate profits earned within their borders and the latest US proposals are contrary to the trend. This may actually end up reducing the competitiveness of US companies with global operations when compared to their European and Japanese counterparts.

As far as India goes, global companies that earn profits here are subject to a tax rate of 33.9% (including surcharge and cess) and the impact of the proposed reforms on them would be marginal.

However, there is still some hope, as the tax reforms announced yesterday have only been proposed and there will be extended debate on them before they can be implemented, as it requires existing laws to be changed. Business groups in the US have assailed the proposal, arguing that it would subject them to far higher taxes than their foreign competitors must pay and ultimately endanger U.S. jobs. 

"It is important to note that most large American companies have more than 50% of their revenues coming from markets outside the US and would be affected by the proposed tax reforms, if implemented," said Nasscom.

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