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China gives tax break to service outsourcing firms

China will exempt service outsourcing companies from business tax from July 1 until the end of 2013 to boost their expansion, the Finance Ministry said on Wednesday.

In a statement on its website, the ministry said the policy covers firms specialising in information technology outsourcing (ITO), business process outsourcing (BPO) and knowledge process outsourcing (KPO) in 21 Chinese cities, including Beijing, Shanghai, Dalian and Shenzhen.

Proservartner Point of View: China is currently the world's second-largest outsourcing market for such services, after India. China's revenues from such outsourcing grew 151.9 percent in 2009 to $10.1 billion, according to data from the Commerce Ministry.

The 5% operating tax exemption will act as a further lever to convince executives to select China instead of the more mature operations in India (and other locations). Although there are plenty of advantages of selecting China against most outsourcing locations, we do not expect this to enable China to become the Premier BPO location – as delivering value and cost reduction not just about saving 5% in operating tax!

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