Removal of tax perk perils PH position as BPO haven

The government’s plan to remove some of the fiscal perks used by the business process outsourcing (BPO) industry would strip the country’s competitive edge, driving firms elsewhere “as other cities in the region try to lure companies by dangling a more attractive tax incentives package,” Colliers International Philippines said.

Colliers warned against some provisions in the Duterte administration’s first package of the comprehensive tax reform program, cautioning the government not to take the industry’s momentum for granted.

The Duterte administration’s first package, currently filed as House Bill (HB) 5636, includes provisions that would remove the zero value-added tax (VAT) exemption on the imports and sales of BPO firms, charging transactions with the VAT equivalent of 12 percent of gross receipts.

The BPO industry, regarded as one of the main pillars of the economy, is among several sectors that will be charged by the bill with higher taxes in a bid to broaden the revenue pool and thus offset the losses from the lowering the personal income tax.

“Removing this incentive from the current set of fiscal perks granted to outsourcing companies will derail existing firms’ expansion and prospective investors’ plans of opening shop in the country. Eventually, these will weaken the Philippines’ position as one of the most attractive sites for BPO and KPO [knowledge process outsourcing] operations,” Colliers said.

Colliers said that the Philippines had nine cities included in the Tholons list of Top 100 outsourcing cites in the world, citing recent rankings wherein Metro Manila placed second in 2016 after Bangalore City of India.

However, this standing may be under threat as the country would face “stiffer competition from its Asean [Association of Southeas Asian Nation] peers” once the tax perks have been removed, which would mean other countries would then have a more attractive tax incentive package.

“The planned reduction of incentives for BPO firms also contradicts the Duterte administration’s thrust of spreading more investments outside of the country’s capital,” Colliers added, referring to how the IT-BPM industry is providing scores of jobs outside Metro Manila.

The real estate services company, whose clients include some of the country’s top IT-BPM firms, echoed the position of the Information Technology and Business Process Association of the Philippines (IBPAP), a group that represents the industry that has become the biggest private sector employer in the country.

The Inquirer reported that IBPAP filed a position paper in Congress last March airing its serious reservations over the bill that would have “irreversible” consequences to the industry.

Trade and Industry Secretary Ramon M. Lopez told the Inquirer earlier this month that he would not support the position of IBPAP, noting that enough compromise had already been made. He did not elaborate.