Proposed US outsourcing tax Bill likely to dent cost arbitrage of Indian IT services

The Bill – introduced by the Ohio Republican Senator Bernie Moreno — known as the “Halting International Relocation of Employment Act” or “HIRE Act”, aims to slap a tax on US companies who outsource jobs overseas 
| Photo Credit:
Daniel Heuer

A new Bill by a US Republican Senator, if passed by policymakers, is set to disrupt the growth of India’s burgeoning services sector and threatens the cost arbitrage enjoyed by service providers here, especially in tech sector.

The Bill, introduced by the Ohio Republican Senator Bernie Moreno, on Friday, and known as the “Halting International Relocation of Employment Act” or “HIRE Act,” aims to slap a tax on US companies who outsource jobs overseas.

HIRE Act proposes a 25 per cent tax on “outsourcing payments,” which is defined as any “premium, fee, royalty, service charge, or other payment made in the course of a trade or business [by any US person] to a foreign person, with respect to labor or services, the benefit of which is directed, directly or indirectly, to consumers located in the US.” The outsourcing payments will also not be deductible for tax purposes, it adds.

Speaking to American media, Senator Moreno said that he was going to put the Bill “on the Floor next week and [we] will know which Republicans are on board and which ones aren’t and will make the Democrats take a vote.” He added that “companies must stop chasing cheap labour overseas.”

With the US being the largest market for Indian IT services and Global Capability Centres (GCCs), the Bill’s evolution into a law will impact the total cost for American companies in outsourcing jobs to India (and other countries) and could force them to consider nearshoring.

Additional tax burden

“If the Bill does get passed, which seems a bit unlikely, it will be an additional tax burden on US enterprises and will put pressure on their margins to that extent, but it may not put a complete halt to outsourcing plans,” Gaurav Vasu, founder and CEO, UnearthInsight, said. “Be it the scale or quality of talent they are able to access in other countries or the cost at which they do it, outsourcing will still be essential to maintain their technology stack and keep operations running smooth,” he added.

An immigration attorney businessline spoke to said the Bill has been introduced in the Senate but any legislation seeking to “raise revenue/tax” in the US, must be introduced in the House of Representatives. “We are still analysing the passage of the Bill given these factors,” the person added.

Nasscom did not respond to queries at the time of writing.

Published on September 8, 2025