Tax reform puts BPO competitiveness in peril, says CCAP

MANILA, Philippines - Global business process outsourcing (BPO) companies are now starting to doubt the country’s capability to sustain the competitiveness of the sector in the coming years as concerns continue to mount over the proposed reduction of their tax incentives under the first package of the tax reform program.

Contact Center Association of the Philippines (CCAP) president Jojo Uligan said the planned rationalization of fiscal incentives has sent jitters to its member companies.

“There are currently companies asking us what’s the real story and what’s going to happen. It (the government incentives) is one of the things why they went to the Philippines and that incentive actually somehow gives the Philippines a competitive advantage,” he said.

“If we have these incentives, we are able to compete. This is what the industry is working on at the moment so we’re having a dialogue with agencies,” he added.

The first package of the Department of Finance-sponsored tax reform program includes the removal of value added tax (VAT) exemption on BPO sales and imports.

Once the tax reform proposal is enacted, BPO firms’ transactions will be subject to VAT equivalent to 12 percent of gross receipts.

Uligan said while the country has other features and advantages to make it as a destination of choice among global BPO firms, the VAT incentive is important for the industry to remain competitive.

“As I said, we’re not the cheapest. We identify a large opportunity for the industry to grow so we still want to grow. There’s still an upward trend and we’re not seeing a point where the growth will plateau,” he said.

Uligan said the IT-Business Process Association of the Philippines would come out by next week with a new position paper that would take into accounts inputs from other industry associations such as CCAP and the Philippine Software Industry Association.

“Of course what we want is to maintain our current incentives, that nothing changes because these are what helped us significantly in the past,” he said.

“The good thing about it is that the industry and the government, we’re coordinating to really understand what will be the effects. In every initiative, there’s good and bad effects. What we’re doing is the government is asking us and we’re giving our position on what we think is going to be the issue and concerns of companies operating. To us, it’s a positive thing because the government is listening. It’s not just like they’re implementing something and not getting our side or any info from us,” Uligan added.

The first package of the tax reform program was passed by the House last Wednesday and is now up for deliberation in the Senate.

Property consultancy firm Colliers International earlier warned of the negative impact of the planned reduction of tax perks to the local BPO industry, saying the removal of the zero-VAT status will hinder the government’s ability to attract more outsourcing investments.

Colliers also said its removal from the current set of fiscal perks granted to outsourcing companies will derail existing firms’ expansion and prospective investors’ plans of opening shop in the country.