BPO tax perks stay, says DOF

MANILA, Philippines -  The Department of Finance (DOF) has assured the business process outsourcing (BPO) sector that it will be able to sustain its competitiveness in the export market as it will not be impacted by the first package of the government’s Comprehensive Tax Reform Program (CTRP).

In a statement, Finance Undersecretary Karl Kendrick Chua said House Bill 5636 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) seeks the removal of tax perks enjoyed by suppliers of export-oriented firms, or those referred to as “indirect exporters.”

Chua explained to exporters, including BPO firms, that they would still retain their VAT exemptions and zero-rated status.

“The fear that the Philippine BPO industry will lose its competitiveness because of the proposed tax reform has no basis,”  Chua said.

“Certain industry stakeholders are likely misinterpreting the provisions of the bill. There is no change in tax policy here for exporters,” he added.

According to Chua, BPO firms in special economic zones (SEZs) would continue to enjoy value-added tax (VAT) exemption, while those outside SEZs, including those registered with the Board of Investments (BOI) would retain their zero-rated status under House Bill 5636 or TRAIN.

“Receipts from foreign services within the SEZs of the Philippine Economic Zone Authority will remain VAT-exempt, as is the case now, because they are outside customs territory by legal fiction, or zero-rated if the exporters are outside the special economic zone, including those that are BOI-registered,” Chua said.

“As for exporters outside SEZs, they are zero-rated on VAT payments and are entitled to get back their VAT payments once they apply for such refunds under the proposed 90-day refund system, while all other taxpayers, including suppliers to exporters will have to pay the VAT,” he added.

However, Chua assured that the zero-rated VAT privilege of indirect exporters would be removed only if and when a credible and enhanced system VAT refund system is in place.

The system, he said, would allow companies to claim cash refunds for their VAT payments within 90 days after the filing of VAT refund applications with the Bureau of Internal Revenue (BIR).

“The concerns raised by the BPO sector against tax reform appear to be misplaced. They will remain competitive as demand for their services are driven by the high quality of service and talent they offer.  The tax policy in the BPO sector will remain the same even after TRAIN,” Chua said.

HB 5636, which contains the first package of the CTRP, aims to simplify the country’s tax system by lowering personal income tax rates and unifying estate taxes, while adjusting excise taxes on fuel, automobiles and sugar sweetened beverages.

It also proposes to broaden the tax base by removing VAT exemptions, including those enjoyed by local suppliers of exporters.

However, PEZA director general Charito Plaza earlier warned that an annual loss of P250 billion could be incurred by local suppliers of export-oriented firmsonce their tax perks are removed.

Thus, PEZA is appealing to lawmakers to maintain the current set of incentives it offers to its locators, Plaza said.