Why has Canada fined Infosys Rs 82 lakh?

The Canadian government has levied a penalty exceeding 1.34 lakh Canadian dollars (approximately ₹82 lakh) on IT firm Infosys for purportedly underpaying employee health tax for the fiscal year ending 31 December 2020, as per a regulatory filing. Infosys received a directive from Canada’s Finance Ministry on 9 May.

The filing stated, “Penalty imposed on alleged underpayment of Employee Health Tax for the year ended 31 December, 2020,” and indicated that a penalty of 1,34,822.38 Canadian dollars was imposed on the company, reported news agency PTI. Infosys clarified that this issue has no significant impact on its financials, operations, or other activities.

The Employee Health Tax (EHT) in Canada is a compulsory payroll tax enforced on employers in certain Canadian provinces such as Ontario and British Columbia. This tax is computed based on a range of employee compensations, including salaries, bonuses, taxable benefits, and stock options. Its main purpose is to contribute to the financing of healthcare services within the respective province.

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Infosys in Canada

Infosys has a significant presence in Canada, with several office locations throughout the country. These include offices in Alberta, Mississauga in Ontario, Burnaby in British Columbia, and another in Ottawa, Ontario.

“Infosys is committed to expanding in Canada by doubling its national job commitment to 8,000 by the year 2024. This is in line with Infosys’ vision to nurture the next generation of innovators locally, for an increasingly digital future. Every day, Infosys enables Canadian companies to harness transformative digital technologies, empower employees through learning and upskilling, and become more competitive in their businesses,” says the company’s website.

The website also states that the company has “created over 5,500 jobs across Toronto, Vancouver, Ottawa and Montreal, with plans for further expansion across the country.”

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We take a look at past incidents surrounding Infosys:

• In January, Infosys was fined $225 by the US taxation authority for allegedly failing to pay the full amount due for the “short payment of modified business tax” over two consecutive quarters. “Short payment” refers to a payment that falls short of the invoiced amount.

• Similarly, in August of 2023, the Florida Department of Revenue imposed a penalty of $76.92 on Infosys for not meeting tax payment obligations.

• Then, in October, the Commonwealth of Massachusetts fined Infosys $1,101.96 for rejecting family and medical paid leave returns for the first and second quarters of 2023.

• In India, in April, the IT services major announced that the Odisha GST authority had imposed a penalty of Rs 1.46 lakh on the company for claiming ineligible input tax credit. Infosys stated that it had received the order on 22 April, 2024, issued by the Assistant Commissioner of State, Odisha (GST), for the collection of a penalty of Rs 1,46,873. The penalty was imposed for availing ineligible Input Tax Credit for the financial year 2018-19, the filing noted.

• In January 2023, UK tax authority HM Revenue and Customs (HMRC) and Infosys, in which UK PM Rishi Sunak’s wife, Akshata Murty holds a stake of close to 1 per cent , were in disagreement over a corporation tax bill of about £20m, according to the company’s annual report. The dispute, initially reported by UK’s Times, is one of the several tax issues the company is facing in various jurisdictions, including Australia.

• In what was the largest fine ever in an immigration case, on 31 October, 2013, the US Department of Justice settled with Infosys for $34 million. The complaint alleged that Infosys had engaged in “systemic visa fraud and abuse of immigration processes.” Specifically, it was accused of misusing the B-1 business visitor visa program by bringing foreign national employees into the United States to perform work that was not authorised under this classification. Infosys was also alleged to have violated regulations concerning the employment of work-authorised H1-B visa holders.

Infosys’ current market state

Infosys shares were trading down 0.09 per cent at ₹1,423.50 on 15 May, at 1:34 pm on BSE. The company has a market capitalisation of ₹5,90,097.73 crore as per BSE.

On 18 April, Infosys announced its Q4 results, reporting a net profit of ₹7,975 crore for the March quarter, with total revenues reaching ₹37,923 crore. The company noted that its year-on-year revenues in constant currency terms remained unchanged and saw a sequential decline of 2.2 per cent.

For FY25, Infosys forecasts revenue growth in the range of 1-3 per cent in constant currency terms and anticipates maintaining an operating margin between 20-22 per cent. Despite expectations of a tepid fourth quarter from D-Street analysts, due to a downturn in discretionary spending, the IT giant reports a robust deal pipeline, reported HT’s Mint. However, deal closures have been somewhat impeded by slower decision-making processes and the impact of furlough periods.

With inputs from agencies