BPO group warns corporate tax reform will lead to slower industry growth

Jacque Manabat, ABS-CBN News

Posted at Sep 10 2019 08:36 PM

MANILA - A group representing firms in the business process outsourcing industry said on Tuesday that the growth of the BPO sector was threatened by a tax reform bill that will place new limits on fiscal incentives.

Congressmen passed the Corporate Income Tax and Incentives Rationalization Act (CITIRA) on Monday, the second package of the government's tax reform program, which aims to bring down the corporate income tax rate to 20 percent from 30 percent at present.

CITIRA, however, will also "rationalize" the tax perks given to select firms, such as those in the BPO sector. 

The IT and Business Process Association of the Philippines (IBPAP) said this would reduce the industry's growth by half, and affect the industry's ability to generate jobs.

"At the end of the day it's what it is. Our ability to continually to generate jobs. We are looking at 40-50 percent reduction, yun ang close. If you'll ask other industries they're even holding other reduction," said Rey Untal, IBPAP president. 

The group said CITIRA will cause their tax expenses to go up by 130 to 170 percent in 2 to 3 years, cause their service rates to increase, and erode their ability to compete globally.

"We're already more expensive than India by 17 percent and this will just increase that price differential," Untal said. 

The group said it also expects the bill to discourage companies from expanding in the country.

CITIRA will remove the 5 percent gross income earned granted to firms that are registered in the economic zones.

IBPAP said it has sent a proposal to the Office of the President saying they are open to paying a higher ate on gross income earned instead of shifting to the proposed corporate income tax rates.

The Department of Finance meanwhile insisted that the industry had "no reason to be worried." 

"We will continue to offer incentives for the right reasons, and are advocating for an even better set under the Duterte administration's plan to make incentives time-bound, transparent, targeted and performance-based," said Finance Assistant Secretary Tony Lambino.

Lambino added that CITIRA will even encourage companies to generate jobs, as it gives additional deductions on direct labor expense for every job created.

"An example of a superior incentive offered by CITIRA is an additional 50 percent deduction on direct labor expense, in addition to the current 100 percent deduction. This means that for every job created, companies will be able to deduct up to 150 percent of direct labor expense, compared to just 100 percent in the present regime," Lambino said. 

He said this would benefit workforce-heavy industries like the IT and BPO sector. 

Lambino added that the gradual reduction of corporate income taxes from 30 to 20 percent is projected to create 1.5 million jobs, as more than 99 percent of companies pay the regular corporate income tax rate. 

He said business owners can use a significant portion of their tax savings to expand their businesses.

The DOF has lobbied for "rationalizing" fiscal incentives, saying in 2017 alone, the government gave away P441 billion in tax incentives to just 3,139 firms. 

Exporters and business groups meanwhile warned that removing incentives may lead to job losses as investors shift their operations to other countries.