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CHENNAI: The creeping of US tariffs into services and the proposed HIRE Act is a big concern for India, finds former RBI Governor and economist Raghuram Rajan. It is a threat to the Indian outsourcing industry. “One of our biggest concerns is not goods tariffs, but the ways in which they try to impose tariffs on services. This is a big threat. The HIRE Act, which the (US) Congress is debating, will put tariffs on outsourced services. How that will be implemented is anybody’s question. The creeping of tariffs beyond goods to services and Indian visitors into the US on H1-B route- these are concerns why we don’t want to prolong the talks. It is important to flag these as concerns if not now, but down the line,” Rajan told Dekoder. The Halting International Relocation of Employment (HIRE) Act is a new legislative proposal introduced in the United States. The Bill is designed to discourage outsourcing by American companies. Under its provisions, a 25 per cent excise tax would be levied on payments made to overseas workers for services that ultimately serve US consumers. This bill seeks to block the tax deductions on such expenses, and the revenue collected from these measures would be guided into a "Domestic Workforce Fund," which is aimed at financing apprenticeship programs and reskilling initiatives to strengthen the American workforce. The US HIRE Act Bill 2025 restricts "outsourcing payments", which includes any fee, premium, royalty, or service charge paid by a US business to a foreign entity for labour or services that ultimately benefit consumers in the United States. If a payment relates to services used by both US and non-US consumers, the tax would apply only to the portion linked to US consumers. The bill proposes a steep rise in penalties for tax non-compliance. The penalty for failing to pay would jump from 0.5 per cent per month to 50 per cent per month. Furthermore, companies would not be able to claim this excise tax as a deductible expense. Indian IT service providers are expected to be most affected, as the US accounts for 70 per cent of India’s IT export revenue. According to reports, if the bill is passed before 31 December 2025, overseas payments made by US companies from 1 January 2026 onwards would be subject to the 25 per cent tax. Talking about the US tariffs on goods, Rajan said: “it is extremely important for India that our tariffs be brought down quickly, especially in these areas where we have labour-intensive industries which have made a certain amount of headway into the US". "What we don’t want is the supply chains that have been built up and integrated into to be permanently disrupted…if that supply gets disrupted and they find other sources of supply, it might be harder to recover,” he added.
