New US healthcare bill may hit Indian cos' profitability

The James Zadroga 9/11 Health and Compensation Act of 2010 seeks to create a USD 4.3 billion fund to provide free medical treatment to those suffering from illnesses contracted while clearing the debris at the Ground Zero in the aftermath of the 9/11 terror attack.

India slammed the move as "retrograde" and the Indian IT industry said it was disappointing that the US is levying taxes only on overseas companies to meet many of its internal funding needs.

The bill passed last night will require an estimated budget of USD 4.3 billion over a 5-year period will primarily be funded by taxing goods and services sourced from contractors in countries like India, China and Thailand, which are outside the purview of WTO's Agreement on Government Procurement.

It will also be funded by continuation of an increased fee on certain categories of H-1B and L1 visas – that would mainly impact Indian IT companies -- and the continuation of a fee on some travelers to this country. The US had hiked the visa fee in August this year to fund border security and was to be valid till 2014. It will now be in force till 2015.

The previous hike was expected to cost the Indian IT industry an additional USD 200 million a year in visa fee. Several Indian IT firms avail H-1B and L-1 visas annually to fly their software engineers to the US for working at their clients' locations.

In a letter to US Trade Representative Ron Kirk, Commerce and Industry Minister Anand Sharma said: "Passing of such a legislation would to my mind be a retrograde step for greater trade engagement."

Indian IT industry body Nasscom expressed concern that the Indian technology sector and overseas companies are becoming a target for US lawmakers. The move would mainly impact Indian IT companies, which earn about 60 per cent of their USD 50 billion revenue from exports to America.

"US lawmakers seem to have developed a new practice of unfairly taxing foreign companies to pay for domestic issues," Nasscom said. Lawmakers in the US Congress, however, agreed only on a scaled down version of the James Zadroga 9/11 Health and Compensation Act, under which the fund will remain open for five years, against the 10 year time that was stipulated in the original document.

The new law comes on the heels of President Barack Obama's India visit in November, when he along with Prime Minister Manmohan Singh released a joint communique agreeing to take steps to reduce trade barriers and protectionist measures.

"While India on its side has been working towards the promises made in the joint communique, we expected the US to show its commitment," it said. Commerce Minister Sharma said the issue of visa fee has caused considerable concern and apprehension to the Indian industry. He said the new law "will send a negative signal to Indian investors who have remained firmly committed to partnering American companies and have supported jobs even at the peak of economic crisis."

Indian companies could also be impacted from a new two per cent excise charge that would be levied on goods and services purchased from contractors from certain countries outside the purview of WTO's Agreement on Government Procurement.

The new procurement tax will also impact other countries such as China, Philippines, Malaysia and as well as those in Africa, the Middle East and Latin America. "The most disturbing part of the development is that US continues to exhibit and practice indirect protectionism, by adopting policies that restrict free trade and are discriminatory trade practices," Nasscom said.