The new value-added tax (VAT) rule introduced by the European Union from January this year, will make offshoring costlier for banking
and healthcare customers in the region by up to 15%, and squeeze margins of India’s top tech firms including Tata Consultancy Services (TCS), Infosys and Wipro.
Starting January 1,2010, the 27-nation bloc has imposed value-added tax (VAT) on services delivered from non-EU nations such as India, a move which will put a renewed squeeze on the profit margins of these tech firms.
Meanwhile, countering the rationale for high billing, Nasscom president Som Mittal said, “VAT ruling which came into effect in January was to harmonise tax regime across EU as every country including Germany, Belgium and France had their own VAT structure. Since an Indian outsourcing services provider does not cater to the end user, an EU customer may offset VAT being paid to the former against VAT charged to the end users. So there’s no question of pressure building up on billing rates.”
The captive market witnessed significant activity and 40 new captives were announced during the quarter, with most of them being in Asia.
The new value-added tax (VAT) rule introduced by the European Union from January this year, will make offshoring costlier for banking and healthcare customers in the region by up to 15%, and squeeze margins of India’s top tech firms including Tata Consultancy Services (TCS), Infosys and Wipro.
Starting January 1,2010, the 27-nation bloc has imposed value-added tax (VAT) on services delivered from non-EU nations such as India, a move which will put a renewed squeeze on the profit margins of these tech firms.
Meanwhile, countering the rationale for high billing, Nasscom president Som Mittal said, “VAT ruling which came into effect in January was to harmonise tax regime across EU as every country including Germany, Belgium and France had their own VAT structure. Since an Indian outsourcing services provider does not cater to the end user, an EU customer may offset VAT being paid to the former against VAT charged to the end users. So there’s no question of pressure building up on billing rates.”
The captive market witnessed significant activity and 40 new captives were announced during the quarter, with most of them being in Asia.