BPOs warn of tax reform’s possible impact on jobs

Posted on June 29, 2017

THE Business Process Outsourcing (BPO) industry association is asking the government to carefully consider the adverse effects on job creation of the tax reform bill seeking to remove fiscal incentives currently granted to the industry which it said will dent the competitiveness of the sector.

The IBPAP said the tax reform bill will impact the BPO industry’s global competitiveness. AFP
The Information and Technology and Business Process Association of the Philippines (IBPAP) said in a statement yesterday that it is supporting the tax reform bill’s ability to increase the take home-pay of individuals, but noted that in crafting the tax reform proposal, the government should “study its impact on both businesses and individual taxpayers.”

“We are petitioning the government to consider the negative impact on job creation that may happen if the incentives of the IT-BPM (Business Process Management) industry are removed,” the group said on Wednesday.

Should the tax reform bill remove the current incentives of the industry -- which represents a major pillar of the Philippine economy -- IBPAP said this will impact the industry’s global competitiveness, as well as the growth trajectories outlined in Roadmap 2022.

“With the current model, there is flexible demand for our services allowing us to be competitive in the global market. This is because the margin of difference is counterbalanced by the high quality service and talent the industry offers,” IBPAP said.

IBPAP in an earlier position paper urged the government to keep the benefits the industry has been granted and warned that changes could drive away investors. It said changes could make the country “less cost competitive” compared to other BPO countries like India, Vietnam, China and Thailand, among others.

IBPAP wanted to keep the exemption of certain sales and imports from the value-added tax (VAT). Once approved, the first package of the tax reform bill would direct the government to subject the gross receipts of BPO firms to 12% VAT.

“This will also impact job creation targets, including sectors who benefit from the 3.2 multiplier effect of the IT-BPM industry,” the group said in its statement pertaining to the removal of incentives.

IBPAP said through the IT-BPM industry’s hub and spoke model to developing the sector and countryside, it was able to contribute significantly to the growth of the middle class over the past decade and with the IT-BPM industry subsectors growing between 9-13% over the next six years all over the country, the industry could continue helping the government with the inclusive growth & poverty eradication efforts.

“However, the magnitude of this growth will be highly dependent on maintaining the competitiveness of the Philippines as a major outsourcing destination and this can be done only by keeping the current incentives that the IT-BPM industry receives,” IBPAP said.

The outsourcing sector currently employs around 1.1 million Filipinos, generating $23 billion in revenue in 2016.

Property consultancy Colliers International earlier said the removal of VAT exemptions on BPO sales and imports is expected to have a negative effect on the industry and noted that these tax perks have been substantial factors in the BPO firms’ decision to set up shop in the country.

Colliers also said legislators should consider the impact of the tax proposal on employment and foreign exchange reserves.

Trade Secretary Ramon M. Lopez said last month that he would not support the stance of the IBPAP to retain the tax perks granted to the sector saying the sector would still enjoy other incentives such as the income tax holiday of four to six years given to firms located in economic zones.

To date, Metro Manila is regarded as the second most competitive BPO destination in the world, with Cebu ranking 7th and Davao in 66th, according to global outsourcing and research firm Tholons’ list of top 100 outsourcing sites in the world. The list includes six other Philippine cities: Santa Rosa, Laguna, Bacolod City, Iloilo City, Dumaguete, Baguio City, and Metro Clark.

Colliers earlier noted that Kuala Lumpur, Ho Chi Minh City, Hanoi, and Singapore are the emerging BPO hubs in the region that could be more competitive once the tax reform package is implemented. -- Imee Charlee C. Delavin