Decline in BPO investments narrows

The decline in IT-BPM investment pledges registered under the Philippine Economic Zone Authority (Peza) narrowed in the first nine months of the year, showing “signs of recovery” which could be sustained after the Senate version of the first tax reform package pushed to keep the current tax incentives of the industry.

According to data from Peza, new investment commitments under the Information Technology-Business Process Management industry fell 21.88 percent from January to September this year, reaching P11.39 billion year-to-date from P14.58 billion in the same period a year ago.

Although still in a decline, this was already an improvement from the industry’s performance earlier this year. According to the Philippine Statistics Authority, new IT-BPM pledges fell 30.9 percent under Peza in the first half of the year, reaching P8.48 billion from P12.27 billion in the same semester of 2016.

Rey Untal, president and CEO of Information Technology and Business Process Association of the Philippines (IBPAP), told the Inquirer that the latest numbers have been “encouraging.”

Furthermore, he said that business perception was expected to improve following the filing of Senate Bill 1592, the latest version of the first tax reform package under the administration. He said the Senate bill had value-added tax (VAT) provisions that finally showed “a full understanding of the sector’s concern.”

“Although still below last year’s numbers, the recent trajectory is encouraging and indicates that government and industry efforts to address uncertainties are proving to be effective,” he said.

IBPAP wants to have a mid-year review of the industry starting next year to assess the current performance of the sector. Until then, Untal previously said that they were relying on Peza reports, especially since the agency accounted for the largest of IT-BPM pledges across the country.

Officials have blamed the decline in new investments to various factors, including fears surrounding Trump’s America First policy, the slow presidential proclamation of new Peza-registered economic zones and the uncertainty under the ongoing tax reform program.

Other versions of the administration’s first comprehensive tax reform package included provisions that did not bid well for the IT-BPM industry, insisting on removing the zero-VAT status of the sales of goods and services made by certain companies, including IT-BPM firms.

After voicing its opposition against previous versions of the package, IBPAP said that it supported SB 1592 since it reflected the concerns raised by the industry.

“We would like to thank the Senate for its continuing support of the IT-BPM Industry especially in view of the headwinds and challenges that the industry is currently dealing with. The efforts to take into account the potential impact of changes to SB 1592’s VAT provisions on the industry’s ability to generate employment certainly shows a full understanding of the sector’s concerns,” Untal said.

In essence, IBPAP wants to retain the current tax perks that the industry is enjoying, arguing that any reduction would dampen the country’s competitiveness compared to rival markets, which, in their own capacities, are aggressively working to attract more foreign direct investments.

Current perks, however, run the risk of being lost after the Lower House passed House Bill 5636 in May, its version of the package that would slap a 12-percent VAT on the sale of goods once the government establishes an “enhanced VAT refund system.” Untal said the house bill was “not the best set-up” for the industry.

On the other hand, SB 1592 would keep the zero-VAT status in the sale of goods and services, a move which means that the industry would be able to keep the current perks that have played a crucial part in keeping the industry competitive against rival markets.

It remains to be seen what would happen next, given that both chambers of Congress would still have to iron out their different versions of the first tax reform package. To add to this, the Department of Finance has raised reservations with the Senate version of the bill after it significantly reduced the additional revenues initially expected from the tax reform.