Obama proposes tax reforms to curb US outsourcing

United States President Barack Obama has proposed a new minimum tax on foreign earnings that is meant to discourage American companies from moving jobs overseas to countries such as India as he looks to spark local industries back to life.

Indian news site The Economic Times, citing the U.S. Treasury Department, reported Thursday that the current business tax system in the U.S. does little to spur job creation and investment in the country while creating too many opportunities that encourage shifting production and profits overseas.

In a statement issued Wednesday, Obama pointed out that the current corporate tax system is "outdated, unfair, and inefficient". "It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America's small businesses to spend countless hours and dollars filing their taxes. It's not right, and it needs to change," he said.

With these concerns in mind, Obama has proposed to establish a new minimum tax on foreign earnings to discourage U.S. companies from outsourcing their jobs to cheaper markets such as India. "Introducing the principle of a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates," he said in the report.

Other measures include companies no longer being allowed to claim tax deductions for moving their operations abroad, and incentives--such as a 20 percent income tax credit--to be given to organizations that bring their operations, and jobs, back to the U.S., it stated.

A separate report by The Hindu Business Line on Thursday said India's IT and business process outsourcing (BPO) industry remained unfazed by Obama's proposed tax reforms.

"Ultimately, it is business sense that wins the day. We are yet to see the nitty-gritty of the framework he was referring to. But the U.S. companies spread across the world would weigh the pros and cons and then decide how to go about this," J.A. Chowdary, leader of The Indus Entrepreneurs, said in the report.

"Multinational companies are no longer coming to India for just cost advantage. India itself has emerged a market for companies such as Dell and IBM. They will factor in the local business interests before taking a serious decision," he added.

Analysts have previously told ZDNet Asia that anxieties over a possible economic recession are unlikely to put a dent on outsourcing demand, while Asian outsourcing companies are also moving up the value chain in their service offerings.