Indian IT in trouble? US bill seeks steep tax on outsourcing
A US bill proposes a 25% outsourcing tax under the HIRE Act, raising costs for Indian IT exports worth $225B and reshaping global service trade.
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After targeting imported goods, the United States has moved to tighten rules on outsourced services, a step that could impact India’s $225 billion IT export industry. A new proposal in the Senate, titled the Halting International Relocation of Employment Act (HIRE Act), seeks to impose a 25 per cent levy on payments made to foreign service providers when the work benefits American consumers.
The legislation, introduced by Senator Bernie Moreno, aims to reduce dependence on overseas workers and push companies to hire domestically. Moreno said the measure is intended to safeguard jobs for U.S. graduates who are struggling to find employment. “If corporations insist on moving work abroad, this bill ensures they pay a price for it,” he said, adding that the objective is to make firms accountable through their finances.
The bill classifies certain transactions as “outsourcing payments,” covering fees, royalties, premiums, or service charges paid to non-U.S. persons. The tax would apply only to the portion of the service that directly or indirectly benefits customers in the United States. Corporations or partnerships organized under U.S. possession laws would not fall under the definition of foreign entities.
The U.S. Treasury Department would oversee compliance and mandate reporting requirements for such transactions. Failure to pay the outsourcing tax would attract heavy penalties, with fines raised from the current 0.5 per cent per month to 50 per cent per month, eliminating the 25 per cent ceiling that exists today. Importantly, the levy would not be deductible from taxable income.
Proceeds from the tax, along with penalties, would flow into a newly created Domestic Workforce Fund. The fund would finance apprenticeship initiatives, job retraining programs, and state-led efforts in regions facing high unemployment due to outsourcing. The U.S. Department of Labor would administer the programs.
If enacted, the law would apply to payments made on or after January 1, 2026.
The proposal could significantly raise costs for American companies outsourcing IT and business process services to India, which accounts for more than half of India’s software export earnings. In 2024-25, India’s IT exports to the U.S. crossed $225 billion. Analysts say the bill, if passed, may alter outsourcing dynamics and increase compliance risks for Indian firms.
The HIRE Act reflects a growing sentiment in Washington against remote outsourcing. Far-right commentator Jack Posobiec earlier called for tariffs on foreign remote workers, arguing that overseas service providers should face duties similar to goods exporters. His statement was amplified by Peter Navarro, a former trade advisor to ex-President Donald Trump.
