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Genpact flags Trump policies a risk

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Analysts say that IT companies had known for a while that changes were underway and should have done more to stay ahead of the issues.
Analysts say that IT companies had known for a while that changes were underway and should have done more to stay ahead of the issues.

Genpact, the BPM and IT services firm, has flagged as risk the changes to tax policies planned by the Trump administration against outsourcing by companies to locations such as India that could potentially impact its business.

US President Donald Trump is increasingly being called out as a risk by Indian IT service providers — given his clear anti-outsourcing and globalising stand. Last year, Wipro was the first IT company to mention Trump’s immigration policies as a specific risk.

“Public figures in the United States, including the current President, members of his administration and other elected officials, continue to suggest that US businesses be subjected to tax or other adverse consequences for outsourcing, with incentives for returning outsourced operations to the United States,” Genpact said in its update risk factors in the annual report it filed with the US Securities and Exchange Commission.

Genpact was at the forefront of the outsourcing wave over two decades ago that created the $167-billion IT services industry in the country. It explained there were as yet no specific measures that had been laid out.

“Although it is not known what specific measures might be proposed or how they would be implemented and enforced, or whether emerging or enacted tax reform or other near-term Congressional action will affect companies’ outsourcing practices.”

US tax reform has provisions that might increase tax implications for companies outsourcing jobs. Under tax reform, captives will have to pay an additional 10% tax, which would dampen the economic benefits of setting up centres in India. The President has also talked about reducing tax rates for companies that bring jobs back. IT executives have said they are yet to fully analyse the implications of the tax reform, especially the impact on captives in India.

Equity analysts are also attempting to parse the impact of tax reform, saying more clarity would come when the companies report their fourth-quarter results.

“The last earnings were in January, and that was too soon for companies to analyse who they would be affected. We expect more details in April because they will have had the time to understand the impact. Cognizant has already shown a charge but that is because it is US-headquartered. We will have to see,” an analyst with a Mumbai brokerage said. He declined to be identified.

Cognizant took a $617-million charge related to the one-time transition tax on deemed repatriated earnings of foreign subsidiaries as the US moved to a modified territorial tax system.

Genpact also highlighted the uncertainty around immigration, including the issues around H1-B and H-4 visas.

“Current US efforts to reduce the number of first-time and renewal H-1B and H-4 visas could result in fewer employees eligible to work for us in the United States under those programs, as could executive actions that prohibit citizens of designated countries from emigrating to and/or working in the United States,” the updated risk factor said.

But IT analysts say that IT companies had known for a while that changes were underway and should have done more to stay ahead of the issues.

“This red flag to IT outsourcing has been there for a while but IT companies have been slow to adapt their business. Everyone has seen this coming,” Sanchit Vir Gogia, CEO of IT consultancy Greyhound Research, said.

“They have had two decades of relatively favourable circumstances…times are changing and they need to show resilience and adaptability.” IT firms have already begun highlighting their contributions to job creation in the US.



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