Business process outsourcing group wants longer ‘sunset’ period for tax incentives

The IT and Business Process Association of the Philippines (IBPAP) expressed concerns on Wednesday about the planned rationalization of tax incentives, as such move may be detrimental to the industry.

In a hearing at the House of Representatives, IBPAP president and CEO Rey Untal said the industry would need a longer sunset period should the government choose to rationalize tax incentives.

“We are looking for a longer sunset ... The ability of our talent to move to digital technology will take a while,” Untal told lawmakers.

He was referring to the limits on tax perks under the second package of tax reforms submitted by the Department of Finance to Congress in January.

Once the second round of tax reforms is enacted into law, the incentives on certain businesses could be amended to make up for the planned reduction of corporate income taxes.

Untal said the IBPAP was open to such proposals, but they would still need several incentives to be retained for a certain period of time to remain competitive.

“We feel that there are a few things we can be flexible with, but there are a few things we need concessions on,” he said.

Untal said the tax incentives could be amended after a two-year transition period.

Should the government remove tax incentives on the business process outsourcing (BPO) industry, Untal said investors would most likely choose to do business elsewhere.

“India has scale and India has skills. India right now is 12 to 14 percent less expensive than the Philippines. If we remove the incentives, our cost differential with India will be closer to 20 percent,” he said.

“If we have that kind of difference, we will be facing a significant risk in relation to the growth that we are anticipating,” Untal noted.

The Department of Finance has said the proposal would not totally erase tax incentives, but rather rationalize them.

In its proposal, the department proposed to either amend or repeal 123 special laws on investment incentives and consolidate what would remain into one omnibus incentive code.

“If and when we do decide to eventually rationalize incentives, (we ask that) this industry be made part continually of the strategic investments plan,” Untal said. —VDS, GMA News