Calcutta, May 27: BPO companies, such as Genpact and Firstsource Solutions, are worried over the consequences of the end of tax holidays on their bottomlines.

The 10-year tax holiday for BPOs ends in 2008-09. The Centre is yet to give any indication on extending the scheme.

Genpact, which earned 66 per cent of its revenues in India in the last fiscal, paid only $0.6 million in tax. The company said this in its filings with the US Securities and Exchange Commission (SEC).

The tax holidays enjoyed by the company’s delivery centres will expire in three stages.

Firstsource also expects its tax burden to increase after March 2009. The recent amendments by the Chinese government in its BPO laws have added to the problems.China will increase the tax rate to 25 per cent from 15 per cent, subject to certain provisions.

In the filing with the SEC, Genpact said it did not expect the benefits from SEZs to be equivalent to that of a tax holiday. It said there were uncertainties and controversies over SEZs.

Under SEZ legislations, companies will get 100 per cent tax exemption in the first five years. In the next five years the exemptions will be reduced to 50 per cent.

The relief will continue for another five years, provided the companies fulfil some obligations on captial investments. Firstsource fears a decline in the efficiency of their operations over a period of time. It also expects costs on recruitment and training to go up.

In the first nine months of 2006-07, the attrition rate of the company was 29.7 per cent.

In its filing before the SEC, Genpact said the wages were rising in India at a rate higher than that in the US and western Europe. This was because of the higher growth rate in the economy and greater competition among firms to hire talent.

Most BPOs are trying to analyse the impact of the proposed fringe benefit tax on employee stock option plans.

They feel the legislation will have an adverse impact on profitability and raise the attrition levels among the senior management.

RBI relief

The Reserve Bank has diluted the foreign exchange norms for outsourcing firms in India to buy equipment for new overseas call centres.

Authorised banks may allow BPOs to pay for equipment to be imported and installed at their overseas sites without bringing them to India, which was the requirement till now, said a recent RBI notification.

RBI has modified the procedure after requests from BPOs wanting to set up call centres abroad.

The BPOs will, however, be required to take necessary approvals from the information technology ministry.

Previously, BPOs were required to produce the exchange control copy of the bill of entry for home consumption as evidence of import of equipment before taking them overseas, which the importers were usually unable to furnish.

RBI governor Y.V. Reddy had also proposed to relax the foreign exchange regulations and provide greater flexibility for such transactions while unveiling the annual credit policy.