Removing VAT exemption of BPOs to threaten sector

A property management and research firm has opined that the proposed removal of the value-added tax (VAT) exemption of business process outsourcing (BPO) companies will stifle the growth of this sector, and may even displace the country as one of the most competitive spots for outsourcing in the world.

"The removal of the zero-VAT status will hinder the government's ability to attract more outsourcing investments. These tax incentives have lured large business process outsourcing (BPO) and knowledge process outsourcing (KPO) companies to set up shop in Metro Manila and other key urban areas across the country," said Colliers research manager Joey Bondoc.

The Department of Finance (DOF) has proposed in its first tax reform package the removal of the VAT exemption on BPOs' sales and imports. Once this is enacted, BPO firms' transactions will be held subject to VAT equivalent to 12 percent of 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. Eventually, these will weaken the Philippines' position as one of the most attractive sites for BPO and KPO operations in the world," added the Colliers official.

This year, Metro Manila and Cebu made it to Tholons' top 10 best outsoucing destinations in the world, ranking second and seventh respectively. The cities of Davao, Iloilo, Bacolod, Dumaguete, and Metro Clark also made it to the top 100.

In addition, Colliers underscored that the removal of the tax exemption would offset the positive impact of some government-led initiatives, including the creation of the Department of Information and Communications Techonology (DICT) Data Privacy Act, and Cybercrime Prevention Act, as well as the government's plan of building a national broad- band network (NBN).

While some proposals in the Comprehensive Tax Reform Program are commendable, including the lowering of both personal and corporate income tax rates, the research firm believes that the "government should not limit the incentives it grants to a sector that has played a crucial role in boosting domestic demand and keeping the economy afloat amid a precarious global economic environment."

The BPO sector has become one of the key economic drivers of the country, growing at a faster rate than overseas Filipino workers' remittances. The entire outsourcing sector now employs about 1.1 million Filipinos. In 2016, Colliers said it generated US$23 billion in revenues.

Over the years, the BPO sector has fueled the rise in retail and residential spending. The jobs created have also benefitted key sectors, including tourism, telecommunications, as well as banking and finance. /