Infosys woes compound as IT slaps notice

Higher visa costs in US take toll, too.

By R. Chandrasekaran

CHENNAI: As if their current problems are not enough, technology bellwether and India’s second biggest software exporter Infosys is in for more trouble. This time with the income tax department, that has issued a fresh notice seeking $106 million for fiscal year 2009.

The news comes on the heels of the company reporting an over 50 percent surge in visa and related expenses in the just concluded fiscal year ending March 2013. The company had spent about Rs.3.08 billion compared to Rs.2.02 billion spent in the previous year, representing about 52.4 percent hike in costs. Surely, this is not one would have liked to hear from the company, especially in the wake of the U.S. revisiting the immigration laws that is threatening to eat into Indian IT companies’ margin.

Infosys attributed the sharp rise in visa related expenses partly to the higher rejection rates forcing them to apply for more number of visas. The situation is not likely to change and could possibly worsen if the new U.S. immigration laws come into force.

In a filing with the U.S. Securities Exchange Commission, the Bangalore-based technology company disclosed that there were already tax demands of $214 million for the fiscal years commencing from 2005, which has been contested. The company indicated that it will take legal remedies against the fresh demand notice for the year 2009 from the income tax department also.

Infosys indicated that the tax department had raised additional taxes of $214 million, which includes $60 million interest, for the fiscal years 2005 to 2008 for the disallowance of some expenditures spent on foreign currency that was reduced from export turnover. However, they were not reduced from the company’s total turnover.

The disallowance also includes part of profit earned from special economic zones and outside India from the software technology part units. The dispute for the four years is pending before the Income Tax Commissioner (Appeals) for its disposal.

Though the company strongly believes than it stands a good chance of winning its appeal against the tax department’s demand, it will certainly be an irritant and take away the management’s focus to an extent.

Infosys is already facing investors’ wrath for not providing an upbeat revenue forecast for the current fiscal year unlike its rivals Tata Consultancy Services and Cognizant Technology Solutions. Investors’ have already started feeling that the company’s management seems to be lacking the execution tact.

Though there were some reports clamoring for the return of N.R. Narayanamurthy at the helm of the company to replicate what Steve Jobs did to Apple a few years back, Murthy scotched such reports. However, The Economic Times reported that Murthy is in touch with the management and expressed his unhappiness on certain issues that are hampering the company’s growth.

The latest immigration laws in the US will also give more headaches for the IT bellwether. While the immigration laws will also affect other IT companies from India, it could also play spoil sport in generating more business deals. It remains to be seen as to how Inosys is going to refurbish its image of a strong growth provider.

To contact the author, e-mail: rchandrasekaran@americanbazaaronline.com

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