BPOs face tax perk removal

Trade and Industry Trade and Investments Secretary Ramon Lopez (File photo by GRIG C. MONTEGRANDE/Philippine Daily Inquirer)

Trade and Industry Secretary Ramon M. Lopez said he would not support the position of the Information Technology and Business Process Association of the Philippines (IBPAP) to retain the fiscal incentives that would otherwise be removed under the first package of the government’s tax reform program.

With the ongoing plenary debates on the bill at the House of Representatives, Lopez told the Inquirer he would not stand in the way of the crucial first package, clearing a hurdle at the possible expense of the largest private sector employer in the country—the Information Technology and Business Process Management [IT-BPM] industry.

IBPAP wanted to keep the exemption of certain sales and imports from the value-added tax (VAT), the removal of which would make the Philippine IT-BPM industry less competitive compared to other countries.

In a position paper obtained by the Inquirer, IBPAP said the proposed changes under the first package “will materially affect the positive perception of the Philippine business environment and will impact, in an irreversible way, decisions to remain, expand or set up new companies in the country.”

Without the exemption, transactions would now be subject to a VAT equivalent to 12-percent of gross receipts. IBPAP said this would make the country “as much less cost competitive compared to India (at approximately 20- to 30-percent cost disadvantage) or other outsourcing destinations such as China, Vietnam, Thailand and others.”

However, Lopez said the industry would still thrive under the proposed tax regime, which is also being backed by the Department of Finance (DOF).

“They [IT-BPM industry] are not in the losing end here. If the only issue there is cash flow, if it’s [the removal of the zero] VAT [exemption] we’re talking about, then if I object, that would just delay the whole tax reform discussion,” he said in an interview.

He said the industry would still have its other incentives such as the income tax holiday of four to six years given to firms located in economic zones. Most IT-BPM firms are registered under the Philippine Economic Zone Authority (Peza).

“I want to protect our sector but I think we protected them enough. There are other incentives there,” he said.

The substitute bill includes a provision that says the exemption would be lifted only when a new refund system is in place that would give the actual refund or reject such payment within 90 days.

However, this may raise eyebrows in the local industry given that the refund process usually takes an average of four years, compared to Thailand and Vietnam, which only take up to 3 months and 6 months, respectively.

The IBPAP is not the only industry group that asked Congress to reconsider how the government wanted to raise revenues.

The Chamber of Automotive Manufacturers of the Philippines (Campi) and the Association of Vehicle Importers and Distributor (AVID) raised their concerns following how the proposed tax reform package would increase the excise tax imposed on cars.
Such as the case with IBPAP, Lopez said he would no longer support the position of the automobile industry, citing how enough compromise for the bill has been made.