Removing VAT exemption of BPO sector to stifle growth – Colliers

Removing the value-added tax (VAT) exemption for business process outsourcing (BPO) firms could stifle the industry's long-term growth prospects, property consultancy Colliers International Philippines said Tuesday.

"The removal of the zero-VAT status will hinder the government's ability to attract more outsourcing investments," it said in an emailed statement.

"These tax incentives have lured large Business Process Outsourcing and Knowledge Process Outsourcing (KPO) companies to set up shop in Metro Manila and other key urban areas across the country," it added.

Taking away the VAT exemption of BPO sales and imports part of the proposals in the first package of the comprehensive tax reform program as proposed by the Department of Finance (DOF). Dubbed as the Tax Reform for Acceleration and Inclusion (TRAIN) or House Bill (HB) 5636, the measure is now pending in Congress.

If the bill is enacted into law, transactions of BPO firms in the country would be subject to the 12 percent VAT on gross receipts.

"Removing this incentive 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," Colliers said.

"Eventually, these will weaken the Philippines' position as one of the most attractive sites for BPO and KPO operations in the world," it added.

American Chamber of Commerce Senior Adviser John D. Forbes said foreign firms may be compelled to do business elsewhere with the imposition of taxes.

"The Philippines is 20 percent more expensive than India. Major changes in fiscal incentives could lead to locators considering competing locations," Forbes told GMA News Online.

"BPO services can be performed anywhere there is qualified labor and good internet; the industry is very competitive," he added.

Separately, the Canadian Chamber of Commerce of the Philippines any change in tax incentives could impact on investor sentiment.

"Any increase in taxes, decrease in subsidies, and/or decrease in tax reductions/exemptions taken in isolation will have some negative impact on a country's attractiveness for an industry that is affected by such changes," Julian Payne, president of the CCCP, said in a text message.

"In the case of the Philippines, we have to assess the impact, not just one factor in isolation but must be the combined net impact of all these factors both negative and positive. Some of these potential changes, such as intended rationalization of incentives, still need to clarified," he said.

The government plans to reduce the personal income tax and expand the value-added tax (VAT) base under the first package of proposals submitted by the DOF to Congress last September.

"However, assessment of the impact of any such changes must also take into account the positive impact of other changes such as decreases in personal income tax, decreases in corporate income tax, and/or provision of other incentives," Payne noted.

Both the United States and Canada are top markets of the Philippine BPO sector.

According to the latest report by professional network portal LinkedIn, the top three most hired professionals in the country are related to the BPO and information technology (IT) industries.

The Philippine IT and Business Process Management earlier said it seeks to generate as much as $39 billion in revenue over the next six years, in line with the industry's 2022 Roadmap. — VDS, GMA News