THE uncertainty brought about by the rationalization of tax incentives is hurting the information-technology and business-process management (IT-BPM) industry across all growth indicators, particularly on job generation and investment inflows, business leaders said on Tuesday.
Rey E. Untal of the IT and Business Process Association of the Philippines (Ibpap) said the looming removal of incentives for locators in economic zones casts a pall over the IT-BPM industry.
As such, it will most likely fail to generate 100,000 new jobs this year, as envisioned in the Philippine IT-BPM Roadmap 2022. The industry, Untal pointed out, is just recovering from overseas concerns on protectionism brought about by the election of United States President Donald J. Trump in 2016.
“[At] the first half of 2017 we were dealing with an offshoot of 2016, which is the protectionist concerns, the issue on rhetoric, the issue on security during that period,” he told reporters.
“My point is that while people are worried that the impact of uncertainty will happen when the tax reform is crafted, in reality, the uncertainty is already upon us. While all of us are waiting for exactly what that eventual regime will be, we are all reeling from the uncertainty already,” Untal said.
House Bill 8083, or the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, will reduce corporate income tax (CIT) on one hand and rationalize tax perks granted to locators on the other. It is the second package of the Duterte administration’s tax-reform program.
As ironic as it is, the Trabaho [Filipino word for jobs] bill could result in thousands of job losses, according to industry leaders.
Untal argued that incentives are crucial for local IT-BPM firms to stay competitive against international counterparts. “The industry players are saying that the incentives, as we have it right now, are very important to them,” he said.
“Equally, they are saying that if there is a radical shift from what we are enjoying from a global competitiveness standpoint, they are not saying that they will close shop nor moving out, but the tendency is they will grow less as a result. That is the sentiment that they have expressed,” the Ibpap president added.
Jojo J. Uligan, president of the Contact Center Association of the Philippines, said the country’s competitive advantages, such as the population’s fluency in English, are not enough to attract IT-BPM firms nowadays. He pointed out the cost of doing business is always page one of the book for investors.
“We have all these factors that make us successful—the people, the experiences, the quality of work and everything—but, at the end of the day, they are going to compute for the cost of doing business in the Philippines. I also wanted call out and say that there is more computation today than before,” Uligan said.
All this factored in, Untal concluded the IT-BPM industry is already “below what we think we can be.” Under its road map, the IT-BPM industry is projected to grow to $38.9 billion in 2022 from an estimated $22.9 billion in 2016. Its employment is also expected to reach 1.8 million in 2022, from about 1.15 million workers in 2016.
However, it could take a hit from the Trabaho bill. While the proposed fiscal reform will lower CIT gradually to 20 percent in 2029 from 30 percent, it will remove a couple of incentives that locators, including IT-BPM firms, deem crucial in their decision to stay here.
One tax perk the Trabaho bill will remove is the 5-percent gross income earned granted to firms registered in economic zones. Locators pay this in lieu of local and national taxes.