Cutting BPO tax incentive ‘to hinder sector’s growth’

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THE rationalization of fiscal incentives for business process outsourcing firms operating in the Philippines may broaden government’s revenue base, but it can diminish the country’s competitiveness as primary choice of BPO companies, according to a property consultancy firm.

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The tax reform program sponsored by the Department of Finance seeks to remove the value-added tax (VAT) exemption of BPO companies, subjecting gross sales receipts to the 12 percent VAT.

Removing the zero-VAT status might hinder the government’s ability to attract more BPO investments in the country. Researchers believe that tax incentives have lured large BPO and Knowledge Process Outsourcing (KPO) companies in Metro Manila and other key urban areas in the country, according to Colliers International.
The Comprehensive Tax Reform Program of the Duterte administration proposes to reduce both personal and corporate income tax rates to raise the purchasing power of Filipinos and generate jobs in various sectors.

But removing the tax incentives from the current set of fiscal perks for outsourcing companies can put on hold expansion plans put off plans by prospective investors to set up outsourcing offices in the country, Colliers reported.

“Eventually, these will weaken the Philippines’ position as one of the most attractive sites for BPO and KPO operations in the world,” the company said.

PH BPO sector

Nine Philippine cities made it to the Tholons list of 100 outsourcing sites in the world, with Metro Manila recognized as the second most competitive global BPO destinations.

Other cities on the list are Cebu (7th), Davao (66th), Santa Rosa, Laguna (81st), Bacolod City (85th), Iloilo City (90th), Dumaguete (93rd), Baguio City (94th) and Metro Clark (97th).

Regional studies have shown that once a government rationalizes fiscal incentives through tax reform, competition from peer markets in the Association of Southeast Asian Nations are expected to poach business as other cities try to attract companies by marketing a more attractive tax incentive package.

Kuala Lumpur, Ho Chi Minh, Hanoi and Singapore are emerging BPO hubs in the region competing in global market.

Colliers sees the purging of incentives killing the positive impact of government initiatives that made the Philippines a prime destination for outsourcing companies. These include the creation of the Department of Information and Communications Technology (DICT) and the enactment of the Data Privacy Act and Cybercrime Prevention Act. The government is also planning to establish a national broadband network.

Implications

The outsourcing sector employs about 1.1 million Filipinos, and generated revenue totaling $23 billion in 2016.
In a recent forum organized by Colliers, Philippine Economic Zone Authority (PEZA) Director General Charito Plaza said the government is eyeing to keep current policies and incentives for various economic zone locators.

STANLEY GAJETE

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