U.S. tax returns outsourcing to India gains momentum
NEW DELHI: India, which has become the electronic housekeeper to the world because of its abundant English-speaking qualified professionals, is fast turning into a destination for processing thousands of U.S. tax returns.
Although the latest development has spread disquiet among the accounting community in the U.S., scores of firms are nonetheless sending returns numbering thousands to India after a study last year showed impressive results.
Ernst and Young, the global accounting services major, is reported to have forwarded thousands of American tax returns to its Indian arm after sending an official familiar with U.S. tax laws to head the operations here.
"The trend started two years back. What we are actually doing is providing intellectual inputs to the tax returns process in the U.S.," said an official of Ernst and Young's Indian arm.
"It's a perfect example of outsourcing. There is nothing unusual about the process. All those professionals who provide intellectual inputs are well-trained in U.S. tax laws," said the official who didn't want to be named.
Industry sources say that besides Ernst and Young, several small and medium-sized American companies are also sending returns to India with a view to cutting costs and increasing turnaround time.
"It's a win-win situation for both of us. While U.S. firms take advantage of our cheaper cost, qualified professionals and speed, the companies here will benefit by diversifying their businesses," said the source.
Industry representatives expect the trend to gain momentum in the years ahead as many more U.S. accounting firms rush to take advantage of the speed and cost factors in a slowing economy.
About 20 firms reportedly sent 1,000 returns to India last year on a pilot basis. The number of firms outsourcing the number-crunching job to India in the next year is likely to more than double.
India has emerged as a technology outsourcing hub in the last few years with many overseas companies hiring out functions like data processing and customer service to cut cost.
According to a survey by Deloitte Research, financial institutions expect to reduce costs by nearly $1.4 billion each by 2008 by sending work to low-cost centres like India from developed economies in North America, Europe and Asia.
Of financial services firms transferring functions offshore, nearly half are targeting India, which has a huge market of IT professionals who earn much lower wages than elsewhere.
While sending U.S. tax returns to India might be the latest form of outsourcing business for accountants here, not everyone is excited in America with the passage of what some regard as crucial financial information to another country.
Those opposed to the outsourcing of tax returns argue that transferring private financial information to another location could result in increased identity pilfering.
Lloyd Carroll, chairman of the accounting department of Borough of Manhattan Community College, termed this latest outsourcing trend as "reprehensible".
"After the debacles of Enron and WorldCom, the last thing the accounting profession needs is another scandal," Carroll wrote in the magazine Practical Accountant.
"Shipping tax returns to South Asia and other foreign destinations is a disaster waiting to happen. In addition to security concerns, I am also angry about the needless loss of American jobs," he said.
Carroll urged Congress to look into the situation and explore the possibility of promulgating legislation prohibiting the "exportation of any American tax return to a foreign destination for preparation".
Experts here, however, say the outsourcing trend is nevertheless poised to gain momentum as accounting firms in the West look at ways to cut costs and increase efficiency.
"First of all, it is not going to be everybody and anybody getting these kinds of projects. It requires some kind of expertise," said Raju Vohra, a partner in independent accountancy firm Sanjay Chopra and Company.
"And secondly, the accounting community in India itself has matured a lot in recent years in terms of focussing on quality and putting checks and balances in place to address any security related concerns."
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