The Finance Bill, 2012 proposes to introduce provisions to enable Advance Pricing Agreements which shall be effective from July, 2012. Under the transfer pricing (India Income-tax Act, 1961)section 92- that provisions computation of income from international transaction, any income arising from an international transaction shall be computed having regard to the arm's length price, which means that any transaction between two entities of the same company should be priced as if the transaction was conducted between two different companies. The proposed income tax law requires “international transactions” to document and file an accountant’s report in Form 3CEB along with the tax return.
EXL is eying few acquisitions in China and Latin America. Rohit, along his team would be traveling China to start talks with Chinese authorities. EXL Launched an additional center in the Philippines, Kochi and Pune to deliver operations in insurance, customer service and finance and accounting. The Philippines center is expected eventually to employ 800 professionals, besides the 1,500 at EXL's existing delivery site in the Philippines.
"With new provision TPA (Transfer Pricing Agreement), the ITO/BPO tax provisions are about to get complex. Transfer pricing has been used by companies to evade tax. Companies often convert their country sales to profit in another. Since each country has different tax rates, by lowering prices in countries where tax rates are high and raising them in countries with a lower tax rate, companies are boosting their overall profits," said Rohit Kapoor, President and CEO, EXL Service.
On the back of its recent acquisition, EXL is filing for advance tax ruling to prevent any awkward situation. "We already have accumulated enough amount of money in escrow account to avoid any unexpected situation that we fear, may arise from misjudgment of OPI transaction. Under new provisions of IT laws, the tax may be computed with retrospective affect and could have an impact for earlier years as well," says Rohit. EXL is learned to have acquired Outsource Partners International (OPI), finance and accounting (F&A) outsourcing service provider for USD 91 million. The company has grown its business through the acquisition route. EXL already have around $15 million stuck in IT disputes. EXL employs effect tax rate of 25% over its revenue. EXL is eying few acquisitions in China and Latin America. Rohit, along his team would be traveling China to start talks with Chinese authorities. EXL Launched an additional center in the Philippines, Kochi and Pune to deliver operations in insurance, customer service and finance and accounting. The Philippines center is expected eventually to employ 800 professionals, besides the 1,500 at EXL's existing delivery site in the Philippines. He, however, declined to give any timeline for any prospective acquisitions. EXL opened the "Center for Talent" in Noida, in February 2012, exclusively dedicated to recruitment, capability enhancement and talent development. The talent center is believed to be first of a kind by any pure play ITO/BPO company. "We are planning to focus exclusively on recruitment, capability enhancement and talent development as we see expansion in our business. We won 17 new clients across outsourcing and transformation services in 2011, including four clients in the fourth quarter of 2011. A global services firm is only as successful as its ability to service clients with teams that have the deep industry and process-specific knowledge needed to solve their pain points,” said Rohit.
"Attrition is coming down" says Rohit. As per company reports, attrition for the quarter ended December 31, 2011 was 27.8% compared to 35.5% for the quarter ended December 31, 2010, and 30.0% for the quarter ended September 30, 2011. Commenting on the recent FY-results, Rohit says, "in the fourth quarter, we managed revenue-$102.6 million despite economic meltdown, driven by strong client demand and vertical expertise." EXL's revenue in 2011 grew 42.6% to $360.5 million. EXL is expecting revenue guidance of $455.0 million, representing annual growth of 40-42 percent.
With rise in service and excise tax rates from ten to twelve percent, infrastructure is bound to get costlier which would hurt the investment scenario. The major concern for India remains the rise of other offshore locations as possible competitors such as China, Philippines etc. Citing the example of Philippines, Rohit believes, India has lost a considerable number of jobs to the Philippines, especially voice-based BPO services. It's important to mention that according to the Contact Center Association of the Philippines, the voice based offerings in Philippines accounts for 70 percent of the overall BPO industry. These shifts are a cautious measure to spread business risks and to reduce the impact of the rising economic uncertainty.
"Unlike India, the Philippine government has created tax incentives for ITO/BPO companies to invest and build businesses. Organizations that setup outsourcing companies in the Philippines are given five-year tax holiday period from the day your start your business," said Rohit.