New 3-year IPP caps income tax holidays for IT-BPM firms in Metro

The proposed 2017-2019 Investment Priorities Plan (IPP) will no longer grant income tax holiday (ITH) to ITBPM firms by 2020 except to those who will locate outside of Metro Manila to encourage dispersal of investments and create employment opportunities in the provinces.

Trade and Industry Undersecretary Ceferino S. Rodolfo told reporters this is one of the changes contained in the new IPP, which was already submitted to Malacañang in December last year for President Rodrigo Duterte’s signature.

The IPP is a list of government preferred economic activities that are entitled to juicy package of tax and fiscal incentives. The incentives include ITH, zero duty on capital equipment and other non-fiscal packages.

Rodolfo explained that the sunset clause on the ITH is a signal to ITBPM (business process management) investors they have four years to plan their expansion in the provinces to continue their availment of the income tax incentive.

“This is a signal for them to move out of Metro Manila,” he said. This will also encourage the IT-Business Process Association of the Philippines to reverse the share of the provincial-Metro Manila ratio of BPO firms to be more in favor of the provinces. At present, a huge majority of BPOs are still crowding themselves in Metro Manila.

To complement this strategy of enticing IT-BPMs into the provinces, the new IPP has also opened up to telco infrastructure investments in the provinces but only to new players.

This move is also seen as one way to cap the incentives granted to IT-BPO companies which prefer to register with the Philippine Economic Zone Authority (PEZA) because it has better incentive package.

Rodolfo noted that the ITH granted by PEZA to its IT-BPO enterprises is based on EO 226 or the Omnibus Investments Act, which mandates the BOI to formulate the IPP. By removing the incentives for Metro Manila locators, the BOI has also in effect put a cap to PEZA incentives.

At present, PEZA locators avail of the ITH and after exhausting this incentive they will move on to another incentive – the 5 percent tax on gross income earned, which can be enjoyed on a perpetual basis.

The proposed 2017-2019 IPP has also introduced some changes by removing a list of specific preferred activities under the manufacturing sector. Instead, the IPP stated that all qualified manufacturing activities, including agro-processing, are entitled to incentives as long as they qualify under the guidelines and criteria.