Lifting the tax exemptions granted to business process outsourcing firms may derail the competitiveness of the local industry and hamper its robust growth, according to Colliers International Philippines.
The proposed removal of value added tax exemptions formed part of the government’s economic reforms. While this broadens the government’s revenue base, it however diminishes the country’s competitiveness as a major outsourcing hub.
“The first package of the Department of Finance-sponsored tax reform program includes the removal of VAT exemption on BPOs’ sales and imports. Once the tax reform proposal is enacted, BPO firms’ transactions would be subject to a VAT equivalent to 12 percent of gross receipts,” Colliers said.
According to Colliers, the removal of the zero-VAT status will hinder the government’s ability to attract more outsourcing investments.
“These tax incentives have lured large BPO and knowledge process outsourcing (KPO) companies to set up shop in Metro Manila and other key urban areas across the country. 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,” it further explained.