US offshoring tax returns preparation to desi accountants
December, 09th 2006
Demand driven by manpower shortage and rising labour costs: Study
Number crunching and financial analytical capabilities coupled with knowledge of International Accounting Standards and US GAAP among the Indian professionals has made India a favoured destination
It could be boom time for Desi Chartered Accountants, as the shortage of accountants in the US has compelled it to look to India for offshoring tax return preparation.
The India growth advantage has been highlighted in a study made by the Pune-based BPO consultancy firm Value Notes, which estimated the off-shored tax return services to have more than doubled from 1.65 lakh (returns) in 2004 to 3.60 lakh in 2006.
The study predicts the number to rise to 1.6 million by 2011 and this is said to be a conservative estimate. Findings show that this demand is driven by manpower shortage and rising labour costs in the US.
The shortage has been attributed to the steep decline in enrolments to accounting-related courses and Certified Public Accountants (CPAs) in the US since the early 90s, coupled with the ageing or retiring accountant population. Further, stringent regulations have not only made the CPAs' job more demanding but also has thrown up huge opportunities both in the industry and audit practice. According to Value Notes, an estimated 148 million tax returns were filed with the Revenue Service in 2006. Individual returns alone were over 90 per cent of the total returns filed and CPAs prepared an estimated 42 per cent of the individual returns.
This invariably happens between January and mid-April, referred to as the `tax season', when the work overload is too much for the qualified accountants . While the US CPA firms have been trying to address this challenge, the load has forced them to find an alternative solution in outsourcing tax return preparation. Value Notes findings show that the US CPA firms send an estimated 95 per cent of the tax returns for preparation to India. "Number crunching and financial analytical capabilities coupled with knowledge of International Accounting Standards and US GAAP among the Indian professionals has made India a favoured destination,'' the study noted.
Mr G. Karthikeyan, Managing Director of the Coimbatore-based GKM Management Services, told Business Line that the biggest advantage for chartered accountants was their ability to speak the global language of accounting with the CPAs.
"This is a good differentiating factor for us compared to large vendors, as we have a common accounting background,'' he said.
GKM Management incidentally is among the three players identified by Value Notes as `likely winners' in this space. The consultancy firm's conclusion is based on the vendors combination of growth strategies, sound funding, effective delivery models and increasing customer penetration. The other two players are Xpitax, facilitator of such services, and Business Accounting Services, a chartered accountant BPO firm.
While Mr Karthikeyan was reluctant to share revenue details, he said the company recorded a 50 per cent growth year-on-year both in terms of revenue and returns. The company has ramped up its team size from just 4 people four years ago to about 200 today. It has, with venture capital backing, strengthened its marketing efforts in the US.
Mr Karthikeyan pointed out that the US CPA firms felt that the turnaround time in offshoring was faster and cheaper by at least 50 to 60 per cent.
ValueNotes report titled `Offshoring tax return preparation to India' suggests that return preparation would set the stage for other accounting services to be sent to India.