BPO firms’ perks to stay under tax reform package, says DOF

The Department of Finance (DOF) on Friday said business process outsourcing (BPO) companies need not worry about the government’s first tax reform package as they will continue to enjoy a number of fiscal perks so that the sector can sustain robust growth.

In a statement, the DOF said foreign services of BPO firms operating within special economic zones (SEZs) will stay value-added tax (VAT)-exempt; meanwhile, those outside SEZs, especially those who had been registered with the Board of Investments, will keep their zero-rated status.

In particular, Finance Undersecretary Karl Kendrick T. Chua said that the proposed first package of the Duterte administation’s comprehensive tax reform program dubbed Tax Reform for Acceleration and Inclusion Act (Train) aimed “to limit the zero VAT rating to exporters and remove such a preferential treatment similarly accorded to suppliers of exporters, or what are referred to as ‘indirect exporters.’”

“The fear that the Philippine BPO industry will lose its competitiveness because of the proposed tax reform has no basis. Certain industry stakeholders are likely misinterpreting the provisions of the bill. There is no change in tax policy here for exporters,” Chua said.

READ: BPOs face tax perk removal

The Finance official said they have no plans to change the status quo wherein receipts from domestic services were slapped with 12-percent VAT. “This has already been the case even before we proposed the Train bill,” he said, referring to House Bill No. 5636 approved by the Lower House before Congress went on sine die adjournment in May.

According to Chua, “receipts from foreign services within the SEZs of the Philippine Economic Zone Authority will remain VAT-exempt, as is the case now, because they are outside customs territory by legal fiction, or zero-rated if the exporters are outside the special economic zone, including those that are BOI-registered.”

“As for exporters outside SEZs, they are zero-rated on VAT payments and are entitled to get back their VAT payments once they apply for such refunds under the proposed 90-day refund system, while all other taxpayers, including suppliers to exporters will have to pay the VAT,” Chua added.

Chua said the first tax reform package “provides that the zero-rated VAT privilege of indirect exporters will be removed only ‘if and when a credible and enhanced system is put in place’ that will allow affected companies to get cash refunds of their VAT payments within 90 days after their filing of VAT refund applications with the Bureau of Internal Revenue.”

“The concerns raised by the BPO sector against tax reform appear to be misplaced. They will remain competitive as demand for their services are driven by the high quality of service and talent they offer.  The tax policy in the BPO sector will remain the same even after Train,” according to Chua.