U.S.’s HIRE Bill may choke India’s IT, BPM, GCC sectors

HIRE Bill that proposes a 25% excise tax on payments made by U.S. entities to foreign service providers poses a significant threat to India’s IT, and ITeS sectors as well as the Global Capability Centre (GCCs) operations, as the tax, along with the denial of tax deductibility for these payments, could drastically alter the cost structures for U.S. companies and consequently result in reshaping the operations of Indian tech industry pegged at $260 billion, industry experts toldThe Hindu.

The HIRE (Halting International Relocation of Employment) Act of 2025 is a recently proposed U.S. Bill, introduced by Republican Senator Bernie Moreno this month, to discourage American companies from outsourcing jobs overseas.

The Bill proposes to impose a 25% excise tax on payments made by U.S. entities for outsourced work that benefits American consumers and would also make these payments non-deductible for tax purposes. “The proposed tax directly targets the revenue stream of Indian IT firms, which derive 50-60% of their total revenue from the U.S. The bill could increase client costs by up to 46% when the disallowance of deductions is factored in, which could slash the core operating profits (EBITDA) of major Indian IT companies by 4% to 8%,” said Avinash Vashistha, Global Chairman & CEO, Tholons, a New York-based GCC and IT services consulting firm, and former CMD of Accenture India.

For leading Indian IT firms, the tax could compress operating margins by 300 to 700 basis points.

‘Speed up nearshoring’

While large firms with 20-22% margins might be able to absorb the impact, mid-tier firms with 12-15% margins would be far more vulnerable, Mr. Vashistha explained. Elaborating how an operational shift or change in business model is likely to take place in the industry, he said, “Indian firms may need to renegotiate contracts to share increased costs with clients.

The tax could also accelerate the move towards hybrid and nearshoring models, where some work is moved to other countries like Canada, Colombia and Mexico to remain close to U.S. clients.”

Mr. Vashishta also said the Bill highlighted India’s significant reliance on the U.S. market and underscored the need for the IT industry to transition from a cost-arbitrage model to a capability-led one by repositioning themselves as innovation hubs and increase investments in R&D, data science, and AI to remain competitive.

Kamal Karanth, co-founder, Xpheno, a specialist tech staffing firm, said irrespective of the skill and innovation arbitrage that India offered to clients, the cost arbitrage still remained as a significant factor, especially on long-duration high value tech projects for clients, he argued adding, the HIRE Act could significantly challenge the cost-arbitrage factor, making it expensive for clients to purchase tech services from India.

Mr. Karanth further said, the exposure of small and midcap IT service firms was equal, if not higher, to that of the large IT service players. The small and midcap players have a relatively higher agility to reconfigure for the future, however they also have to brace for a higher risk based on how their client spread is configured currently.

However, B.S. Murthy, CEO of Leadership Capital, a CXO consulting firm said, the HIRE Bill may not see the light of day as big tech firms in the U.S. may strongly resist its introduction. The ask of taxing tech exports from India, directly or indirectly, has been there for long, but the U.S. Congress and earlier Presidents have not moved on it as it was impractical, he noted.

“You need to see the whole narrative in a different angle. The best paying jobs were taken away by non-Americans till date. The new visa fees might make sure big tech firms hire natives in their future needs to fuel growth in the era of AI & quantum,” commented Mr. Murthy.

Millions of jobs at stake

“At the current level of exposure, HIRE Bill, if passed can impact 40%-60% of over the 2.5 million IT service cohort’s workforce,” Mr. Karanth estimated. While Mr. Vashistha said 30-40% of India’s IT-BPM workforce to be impacted.