A 25% U.S. proposed outsourcing Tax could upend India’s $250 Billion IT services industry:
A 25% U.S. outsourcing tax, proposed under the HIRE Act, could significantly impact India’s $250 billion IT services industry by increasing costs for American clients, reducing profits for Indian firms, potentially causing job losses in India, and reshaping global outsourcing dynamics by making domestic U.S. services more competitive.
The tax would apply to payments for outsourced work that benefits American consumers, making such payments non-deductible and forcing U.S. companies to either absorb the increased costs or pass them on to their Indian partners.
Introduction:
The HIRE Act (Halting International Relocation of Employment), was proposed by Ohio Senator Bernie Moreno in September 2025 and it seeks to discourage outsourcing by imposing a 25% tax on U.S. payments for services performed by foreign providers when those services benefit U.S. consumers.
Key Provisions:
1. 25% Tax: The core provision is a tax on outsourcing payments made by U.S. entities to foreign service providers.
2. Non-Deductibility: Companies would not be able to deduct these outsourcing payments as business expenses, which would significantly increase the after-tax cost of offshore services.
3. Domestic Workforce Fund: The tax revenue generated would fund programs to strengthen the U.S. workforce, such as apprenticeships and reskilling initiatives.
Broad Scope:
1. The bill’s language is broad, potentially encompassing payments to large IT service providers, global captives, and freelancers, as long as the benefit ultimately accrues to U.S. consumers. Purpose
2. Discourage Outsourcing: The primary goal is to make outsourcing less financially attractive for U.S. companies.
3. Promote local Jobs: By increasing the cost of hiring foreign workers, the bill aims to pressure companies to hire American workers and create job opportunities for locals.
Conclusion:
1. Direct revenue & margin hit — U.S. clients account for a majority of revenue for large Indian IT firms. A 25% tax will make many existing outsourcing contracts much less economic.
2. If this tax sees the light of the day, large IT companies or GCCs may shift more work on-shore (U.S. hiring), set up stronger local subsidiaries/GCCs in the U.S. or near-shore.
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