Tax Reforms in USA — Follow Obama’s lead

Before anyone in India gets hot under the collar about US
President Barack Obama’s tax proposals, because they might seem targeted at
job creation in ‘Bangalore’, it is important to understand what he is trying
to do. For, on any rational basis, it is hard to be critical. American
companies that invest abroad have been tax-exempt on the profits from such
businesses until they bring the profits back into the US; however, they have
been allowed to claim a set-off on the expenses related to such investment.
This has been an open invitation to invest overseas and not in the home
market, especially if the money is routed through tax havens so that the firms
pay no tax on their profits anywhere.

Mr. Obama has called this a ‘scam’, a term to which
American businessmen have taken umbrage, but it is hard to think of it in any
other terms. The figures trotted out, showing that effective tax rates on such
investments have been in the 2-3 percentage points range, support the
president’s drive to raise the effective level of tax on such corporate
activity, at a time when he is running a gigantic deficit and needs money for
other programmes. Indeed, India should do likewise (companies that borrow
money to invest overseas, and claim a tax set-off on the interest cost of the
loan, should not get a set-off unless they remit the profits home and pay tax
on it). In other words, this is not about jobs in Bangalore or Buffalo, though
that is how Mr. Obama put it somewhat dramatically.

(Source : Business Standard, dated 07.05.2009)