FINANCE Secretary Carlos G. Dominguez III said that poor infrastructure is what keeps investors from setting up business process outsourcing (BPO) operations here, not the loss of incentives associated with the tax reform program.
“There are other factors that affect the foreign investments coming in. So what are those other factors? Poor infrastructure…that is the number one factor that is hampering FDI (foreign direct investments),” he told reporters late last week.
His remarks were issued in response to calls by the Philippine Economic Zone Authority, as well as the BPO industry not to remove value-added tax exemptions on export sales, which would reduce the industry’s competitiveness against regional BPO rivals.
The Information and Technology and Business Process Association of the Philippines (IBPAP) said last week that although it supports the lowering of personal income taxes for individuals, it asked the government to consider the losses the industry may face when its tax perks are stripped away.
IBPAP said that it was able to contribute significantly to the growth of the middle class over the past decade and with the IT-BPM (business process management) industry subsectors growing between nine to 13% over the next six years.
In 2016, it employed 1.1 million Filipinos and generates $23 billion in revenues.
The BPO industry sought to keep the exemption of certain sales and imports from the value-added tax (VAT).
Once the first package of the Tax Reform for Acceleration and Inclusion Act is approved, it will direct the government to subject the gross receipts of BPO firms to a 12% VAT.
Mr. Dominguez said that reforming the tax system to generate more revenue will enable the government to be better placed to carry out an infrastructure program, in which it aims to spend about P8.4 trillion on various projects over the medium term.
He said improving transport networks for goods would lower costs for businesses.
“So that is why we are going to spend money on infra, we have to raise some money to do that, we cannot just keep on borrowing, we have to pay for our own infra,” he said.
“If the infra is better then perhaps, you will attract more investors. The idea of infra is to lower people’s costs, transportation cost, logistics cost, etc. And these perks they are enjoying now will certainly be substituted with a better infra setup,” he added.
Aside from lowering income tax rates and withdrawing some VAT exemptions, the tax reform program also proposes to increase excise tax rates on fuel and automobiles, and harmonize donor and estate taxes into a lower rate.
The Finance department’s first package of the tax reform program is expected to yield P1.163 trillion in net revenue from 2018 to 2022, with P133.8 billion generated in the first year of implementation, P233.6 billion in 2019, P272.9 billion in 2020, P253 billion in 2021 and P269.9 billion in 2022.
“If you notice the Philippines has a very bad habit of passing laws and then the next day passing exemptions… for VAT, we have had almost 60 items of exemptions. How come we charge 12%, but we are only collecting 4.3% of our GDP (gross domestic product)? While Thailand charges only 7% and still collects 4.3% of their GDP as VAT. Our goal is not only to raise the revenue but to make it more fair,” said Mr. Dominguez. — Elijah Joseph C. Tubayan
