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India is set to take up with China the latter's new social security tax on foreign workers, a controversial move that could impact Indian companies, especially those in the information technology sector such as TCS, Infosys and Genpact.
According to the new norms reportedly made mandatory from October 15 by the Ministry of Human Resources and Social Security of China, foreign workers and their employers have to contribute to a social security fund and thereby, take part in the Chinese social security system.
The new regime specifies that foreign workers will have to make a contribution of up to 11 per cent of their salaries, while the employers need to contribute up to 37 per cent of the salaries paid to their foreign employees, both subject to a maximum of around $1,803.
Impact on Indian companies
India has asked its embassy in Beijing to look into the issue and assess the overall impact on Indian companies including whether the mandatory contribution will increase total costs regarding their employees as well as if the move is slowing down the expansion plans of Indian firms in China, official sources told Business Line .
The Indian Embassy in Beijing has also been asked to find out the dates of implementation of the new tax and the exact contribution amounts in various Chinese provinces. The matter is likely to be on the agenda during the next Ministerial-level bilateral talks early next year, they said.
According to industry estimates, the move may push up the salary costs by around 40-50 per cent, and therefore, it could mainly affect the hiring of employees, especially at the top levels where the pay packages are higher.
Pointing out that India has already signed social security agreements with many countries and is negotiating similar pacts with countries such as Japan, a senior official in a leading industry body said that one of the options before the Government is to enter into such a social security pact with China to help Indian companies neutralise the impact of the new tax.
According to a recent Deloitte-CII report, Infosys Technologies, HCL Technologies, Zansar Technologies, BirlaSoft, and KPIT Cummins have recently made additional investments in China, while other Indian IT companies such as TCS, Tech Mahindra, Mahindra Satyam, NIIT, 3i Infotech, Nucleus Software, Wipro, MindTree Consulting and Genpact have their operations in China.
“Infosys China plans to triple its current staff to 10,000 over the next three years… TCS currently employs 1,200 employees (January 2011) in five delivery centres and plans to ramp up these numbers to 5,000 in the next three years. Currently, Genpact employs 3,000 employees in its China centres,” the report said.
India has already asked the US to exempt its professionals from the latter's social security tax and is negotiating a bilateral Totalisation Agreement in this regard with Washington. Indian IT industry has been impacted by the absence of a Totalisation Agreement with the US because they have to shell out more than $1 billion every year to the US as social security, with no benefit or prospect of refund.
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