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Warning over plan to tax offshore call centres

8th Jun 2010
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A US Senator’s plans to introduce a bill to tax offshore call centres in a protectionist bid to protect local jobs could spectacularly backfire if it becomes law, according to researcher Ovum.

The legislation put forward by Senator Charles Schumer, a Democrat from New York who is chairman of the Refugees and Border Security subcommittee, would impose a $0.25 excise tax on any customer service query that originated in the US, but was referred on to personnel working in a foreign location.

Companies would also need to inform customers about where the call was answered and where their personal information was being kept. They would likewise be required to publicly disclose how many customer calls they received and how many were sent overseas in their quarterly and annual reports as well as to certify that they were adhering to the new regulations or face penalties.

But Ian Jacobs, an analyst at Ovum, warned that the mechanisms required to police traffic to offshore contact centres could end up costing the government more than the excise tax it would generate.

This was not least because the number of business-to-consumer-focused organisations that could be affected by the regulations if they offshored some or all of their customer interactions, ranging from technical support enquiries to ordering fast-food meals from a drive-through window, would be in the "millions".

But Jacobs also cautioned that any such proposed legislation could bring about three unintended consequences.

Firstly, he said: "The most likely result for many companies that have already made a strategic decision to shift contact centre work overseas would be to simply pass the added costs onto consumers."

While labour arbitrage remained the most common reason to offshore high-volume support services, many also did so because such activity did not form part of their core business.

As a result, adding a small excise tax was unlikely to make firms revisit their decision, especially because of the huge disparity in costs between employing US-based customer service agents and staff in even the more expensive of offshore locations such as India and South Africa.

The second possible repercussion was one of organisations simply shifting their call centres to even cheaper offshore destinations to take the sting out of the tax. "If the bill makes India or the Philippines cost-prohibitive, companies may well start investigating outsourcing companies in places such as South and Central America, Africa or other developing economies hungry for US dollars," Jacobs said.

The final consideration was that protectionist policies tended to breed protectionist retaliatory action. As a result, if the US government created a tax that harmed the Indian economy, for example, India "could well alter its trade policies in order to harm the US aerospace industry of the US medical devices industry," Jacobs warned.

Moreover, while the idea of notifying customers where their support calls were dealt with had some merit, consumers would be powerless to do anything meaningful with the information. As Jacobs pointed out: "Hanging up and calling back would only produce the same result."

Therefore he added, the proposed legislation is likely to accomplish little in way of meaningful benefits to the US economy if enacted "while opening the door to several negative consequences".

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