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From the Philippines,with gratitude

India’s arbitrary policy environment has shifted IT and BPO jobs out of here,to more reasonable regimes

Written by Jaithirth Rao | Published: March 24, 2012 12:24:46 am

India’s arbitrary policy environment has shifted IT and BPO jobs out of here,to more reasonable regimes

To

The Honourable Finance Minister of India

Dear sir,

I wish to introduce myself as the finance minister of the Philippines.

I am truly grateful for all the actions that your excellent ministry has been undertaking these past few years,which have helped the BPO industry in the Philippines a great deal. You may be aware that the Philippines BPO industry has been growing much faster than its Indian counterpart and is now all set to overtake the Indian industry,which till a decade ago was viewed by all of us with wonderment,awe and envy. We never dreamed that our country could be in the same league as India. But then we were earlier not well-informed about your income tax department,the frequent and arbitrary changes in rules that emanate from this department and the vicious harassment of Indian IT and BPO industries which over the last several years has become a concerted strategy of this great department. We in the Philippines count the Indian income tax authorities among our best friends. We request you to give us the names of the individuals in this worthy department who have been behind this wonderful strategy of weakening this labour-intensive Indian industry and indirectly helping the growth of our own. We would like to confer special Magsaysay Awards to these individuals,refer to them as “Friends of the Philippines” and invite them to have a holiday in our country. The BPO companies in the Philippines have generously promised to foot the entire bill of their benefactors.

The Indian income tax authorities are particularly targeting “captive BPO” companies by asking them to re-compute their taxable profits based on arbitrary and changing transfer pricing guidelines without adequate safe harbour provisions,which are commonplace in most countries. We have decided to do exactly the opposite. We are reasonable in our tax demands,simple and transparent in our transfer pricing rules and generous in our tax holidays. This has resulted in many captives stopping the growth of their Indian BPO outfits and accelerating the growth of their units in the Philippines. All the employees of these units in my country wish to express their gratitude to you,your government and your ministry. Without the capricious behaviour of the Indian government,most of them would not have jobs. I am now told that your officials are raising tax demands on captive units of global companies using their global profits as the basis. What a wonderful idea! I have no doubt that this one decision alone would cause several of these companies not only to stop growing their Indian subsidiaries,but actually start winding them down. Nothing could be better news for the Philippines. I have instructed my officials to come up with other distinctly business-unfriendly regulatory ideas. We will share them with your officials when they visit us. As and when such ideas are implemented,doubtless the Indian BPO industry is bound to shrink and glory days are sure to be ahead for our country. We are told that in many cases these rapacious tax demands will in due course be struck down by your independent tribunals and courts. In the meantime,the companies will have to pay up,be out of cash and will be spending their time and money on expensive tax lawyers instead of focusing on their operating businesses. Of course,in some years,the whole problem will go away as all of them will close shop in India and move to the Philippines. We will then be more generous with Magsaysay and “Friend of the Philippines” awards.

In forums like the WTO,your country and mine have been arguing in favour of free movement of labour where it is associated with trade in services. For instance,when an IT project has to be implemented in the US,overseas service-providers are required to send staff on-site to help supervise and implement the project. Some political groups in the US have been arguing that these activities constitute “body-shopping” and have been making the case for using visa restrictions as a non-tariff barrier against trade in services. It is gratifying to note that our two countries have been on the same side in this argument. However,I am informed that your income tax department has now taken the position that such revenues do not constitute “service exports” and that in fact they are really body-shopping. They are in effect supporting those in the US who wish to impose trade barriers on Indian firms. At first,I was a little puzzled as to why one wing of your esteemed government would so fatally undermine the sovereign position of your government. But the more I dug into it,the more obvious it became to me that the Indian government is full of Friends of the Philippines and Friends of China. Your tax authorities are actually going back several years in time and raising demands on “service export revenues” (sorry — they are right — “body shopping revenues”),forcing your large,successful,world class companies to pay up,make provisions,issue guarantees and generally get weakened financially.

It is particularly heartening to note that there are persons in India who are determined to wreck one of the few industries where India has achieved world class and where Indian companies are considered formidable operators. I brought to the attention of the finance minister of China the fact that Indian IT companies who till the other day were poster boys of India are now being harassed despite earlier explicit and emphatic assurances that on-site project implementation revenues would be treated as export income. The finance minister of China was salivating. He is now looking forward to global corporations and for that matter,Indian IT companies are moving more and more of their activities to China. He plans to write to you in order to congratulate you on the wonderful steps that your government is taking that will be of immense benefit to China.

Sincerely yours,

Finance Minister of the Philippines

The writer is a Mumbai-based entrepreneur

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