WITH firms in the business process outsourcing (BPO) industry shifting registration to the Board of Investments (BOI), Rep. Joey Sarte Salceda urges finance sector regulators to make rules for tax perks simpler and clearer.
In his letter to Finance Secretary Benjamin E. Diokno last September 25, Salceda asked for simpler and clearer rules “in view of the impending shift to the [BOI] by many new and existing BPO [firms].”
Under the Corporate Recovery and Tax Incentives for Enterprises (Create) law, or Republic Act (RA) 11534, all Investment Promotion Agencies (IPAs) now have the same incentives to offer to investors and locators.
Registering under an IPA like the BOI, BPOs, according to the Create law, can avail of enhanced deductions on power costs, labor costs, training expenses and research and development, instead of the 5-percent special corporate income tax rate.
Salceda said some BPO firms “might actually pay even less tax as a result.”
“But we also get more benefits out of their spending on research, training and others,” the lawmaker said through a statement.
“But, for BPOs to benefit from such incentives, the BIR has to make the rules simpler and clearer. Otherwise, there’s going to be plenty of room for negotiation and possibly corruption,” Salceda added. “Foreign BPOs in particular are spooked by that.”
Recommendations
SALCEDA’S letter to Diokno, copies of which were furnished reporter, also contained a recommendation that revenue issuances be released with some elements.
These elements include the definition and examples of allowable deductions for training and research and development. Other elements that Salceda cited include: simplified and online uploading system of documentary requirements for enhanced deductions; guidelines for automatic approval of enhanced deductions, in the direction of a more risk-based approach to validating self-declarations; and, remedies in the event of disallowance of requested deductions.
“As you know, the crediting of such deductions will help the BPO sector up-skill towards higher-value processes and services, to wean the Philippines off of voice services, which are expected to be a sunset sector within the BPO industry,” said Salceda. The lawmaker said he also asked the Bureau of Internal Revenue (BIR) ensure that the proper tax rate is imposed on BPO firms.
Salceda said those availing of enhanced deductions will be subject to either 25-percent or 20-percent corporate income tax (CIT) rate, depending on their size and income. He, however, hopes small-scale and medium-scale BPO firms would not experience over-assessment or the imposition of higher rates.
More crucial
THE lawmaker told Diokno in his letter that a significant number of BPO companies are low-asset corporations with total assets of less than P100 million and total net income of less than P5 million.
“These tend to be small, provincial BPO companies. As such, they will fall under the 20-percent CIT rate, rather than 25 percent,” Salceda said in his letter. “I sincerely hope that the BIR will ensure that measures are taken so that undue assessments are not made against such corporations by BIR officers.”
The lawmaker said that “places like Albay have much smaller BPO [firms] that are sometimes even family-run. So, I hope the BIR will be fair to them and impose the right tax rate: nothing more, nothing less.”
Salceda said that easy and clear tax compliance for BPO firms will help preserve the BPO boom the economy is enjoying.
The BPO sector, represented by IT and Business Process Association of the Philippines (IBPAP) President Jack Madrid said last Wednesday that the industry expects to grow annually by 8 percent in the next six years.
“The BPO sector is more crucial now than ever, as we need more foreign currency earnings to offset the effects of a very strong dollar on the peso,” Salceda said. “Easy and fair tax compliance is the least we can do.”