Tax returns offshoring to India on the growth path

Overloaded CPA firms have increasingly been taking to offshoring tax returns preparation to India. The workload in the peak tax season forces CPA firms to employ seasonal tax workers, and let go of other lucrative professional opportunities, which are typically more remunerative. These include advisory services, Sarbanes-Oxley compliance, financial budgeting, MIS reporting, etc. Outsourcing works well to address this situation for CPA firms already challenged by manpower shortages and rising labor costs.

The ‘solution’ is not without its risks, and legal, regulatory and ethical issues remain at the forefront of outsourcing decisions. However, CPA firms and Indian vendors have been working together to mitigate these risks. Increased use of remote connectivity allowing data to be processed without being transmitted to India ensures greater data privacy and security. There are other stringent controls at vendor premises for added security. Offshoring also results in the use of advanced workflow technologies, which go to increase in-house efficiencies and forces firms to adopt the best technology practices. The increased standardization and sophistication in the offshoring process is leading to large efficiency gains for CPA firms.

A new study by Pune-based ValueNotes, titled “Offshoring Tax Returns Preparation to India” shows that outsourcing has also presented other benefits to CPA firms. Analyst and co-author Pratibha K. feels that CPA firms will increasingly use outsourcing as a strategy to gain competitive advantage. India offers a large, English-speaking accounting workforce and a time-zone advantage that allows round-the-clock operations. She says CPA firms are already leveraging established vendor relationships to derive higher value.

An established low-cost base in India for seasonal work sharing also throws up opportunities to offshore other accounting requirements during the lean season. Arun Jethmalani, CEO of ValueNotes believes that “both vendors and buyers are at an inflection point on the maturity graph, and tax returns preparation will drive penetration into a wider range of offshored professional accounting services.”

The ValueNotes report estimates that theoretically by 2011, a potential 22 million Returns can be prepared from India garnering $2.1 billion in revenues. However, CPA firms in the US are relatively new to offshoring and a more realistic, if conservative estimates indicate that India-based vendors (including captives) are likely to help prepare 1.6 million returns and earn about $200 million in revenues by 2011. Another $435 - $450 million of revenues are expected to be contributed by full time workers from their non-tax services for the rest of the year. Collective annual revenues from all workers involved in tax preparation are expected to range between $600 and $650 million by 2011.