When the House of Representative approved the third and final reading of HB 5636 which refers to Tax Reform for Acceleration and Inclusion (TRAIN), it caused a big ripple to those who work and manage BPO companies. Under HB 5636 that is backed by the economic managers of Duterte Administration, the government has planned to lower personal income tax, expand the value-added tax base or VAT on various sectors, and adjust excise taxes. As an answer, the Makati Business Club claimed that it will have a negative impact on the BPO industry once this bill is passed into a law since transactions of BPO companies will shoulder 12% VAT on gross receipts. In addition, the removal of the BPO sector’s tax incentive will negatively affect the country’s ability to attract outsourcing investments in the future. The BPO industry is a winning sector for businesses since the top three most hired professionals are BPO and Information Technology industry-related. Now, this tax reform is the main concern that Rey Untal faces who’s the new leader of IT-BPM plus the fact that this sector holds the status quo under Package 1 of the tax reform package. Their sub-sector ROHQs or Regional Operating Headquarters are excluded since it will be greatly affected due to HB’s version by removing 15% preferential tax rate which can only generate about P1.5 billion tax collection.
Mr. Untal claimed that revenue wise, the ROHQs were able to give $4 billion of the $23 billion earned by the industry in the previous year. Furthermore, Untal said that this tax incentive has transformed the Philippines into a more attractive option for conglomerates compared to Malaysia, Hong Kong, and Singapore. But still, he’s unsure of the immediate impact on the industry. Based on the recent data, India still holds the top position for ROHQ location. However, other countries especially Malaysia is trying to lure investors with a good incentive package. Mr. Untal firmly believes that IT-BPM has improved due to the country’s good talent pool, conducive working environment, and acceptable infrastructures. ROHQs have also provided jobs of the future composed of complex works in financing, accounting, HR, and analytics. Package 2 of the tax reform program is more critical since the government is still adjusting the corporate income tax rates and incentives rationalization. The draft wasn’t available yet, according to Mr. Untal, but he’s hopeful that the government will be able to retain the incentives. This is to make sure that Philippines will still be able to offer cost-effective services and show aggressiveness to its neighboring countries at the same time because this will bring potential investors in the Philippines.
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October 2017
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