CITIRA may slow BPO growth – IBPAP

The IT and Business Process Association of the Philippines (IBPAP), a group representing firms in the business process outsourcing (BPO), noted on Tuesday that the growth of the industry is threatened by a tax reform bill that will place new limits on fiscal incentives.

In a statement, IBPAP president Rey Untal said that the recently passed Corporate Income Tax and Incentives Rationalization Act (CITIRA) would reduce the industry’s growth by half, and affect the industry’s ability to generate jobs.

The CITIRA is the second package of the government’s tax reform program, which aims to bring down the corporate income tax rate to 20 percent from 30 percent at present and will also “rationalize” the tax perks given to select firms, such as those in the BPO sector.

“At the end of the day it’s what it is. Our ability to continually to generate jobs. We are looking at 40-50 percent reduction, yun ang close. If you’ll ask other industries they’re even holding other reduction,” said Untal.

The group warned that the CITIRA will cause their tax expenses to go up by 130 to 170 percent in two to three years which will cause their service rates to increase and erode their ability to compete globally.

“We’re already more expensive than India by 17 percent and this will just increase that price differential,” Untal said, adding that they also expect the bill to discourage companies from expanding in the country.

The Department of Finance (DoF), on the other hand, insisted that the industry had “no reason to be worried.”

“We will continue to offer incentives for the right reasons, and are advocating for an even better set under the Duterte administration’s plan to make incentives time-bound, transparent, targeted and performance-based,” said Finance Assistant Secretary Tony Lambino.

The assistant secretary added that CITIRA will even encourage companies to generate jobs, as it gives additional deductions on direct labor expense for every job created.

“An example of a superior incentive offered by CITIRA is an additional 50 percent deduction on direct labor expense, in addition to the current 100 percent deduction. This means that for every job created, companies will be able to deduct up to 150 percent of direct labor expense, compared to just 100 percent in the present regime,” said Lambino.

He said this would benefit workforce-heavy industries like the IT and BPO sector and added that the gradual reduction of corporate income taxes from 30 to 20 percent is projected to create 1.5 million jobs, as more than 99 percent of companies pay the regular corporate income tax rate.

He said business owners can use a significant portion of their tax savings to expand their businesses.