Train 2 casts cloud on sunshine industry

by KATLENE CACHO, Sunstar

THE second package of the government’s tax reform is seen to dampen the future of the country’s information technology and business process management (IT-BPM), an industry official said.

Jonathan de Luzuriaga, president of Philippine Software Industry Association, said the incentive discussion under the Train 2 package is already beginning to hurt the industry.

“There are a lot of players who approached me and told me that they are stepping on the brakes right now in terms of their growth plans, primarily because the only thing that we have to market the country is actually going to go bye-bye,” said de Luzuriaga during the 2018 Transformation Summit organized by the Cebu IT BPM.Organization (CIB.O).

“Hopefully, this will get settled soon. If you ask me what is in Train 2 package, I don’t really know. It keeps on changing every day,” he added.

Train 2 seeks to rationalize fiscal incentives and reduce corporate income tax rates gradually to no less than 25 percent from 30 percent.

The DOF submitted the proposal to the House of Representatives last Jan. 19.

The economic team of the Duterte administration is proposing to modify tax incentives for companies to make these “performance-based, targeted, time-bound, and transparent.”

Under this tax reform package, the government wants to ensure that incentives granted to businesses generate jobs, stimulate the economy in the countryside and promote research and development; contain sunset provisions so that tax perks do not last forever; and are reported so the government can determine the magnitude of their costs and benefits to the economy.

Besides the Train 2 package, US protectionism, the need to leapfrog and the service-centric environment of the country are the other headwinds for the industry.

“These things are beginning to dampen the future of what was once a sunshine industry,” said the PSIA official.

Total IT-BPM investments for 2017 plummeted by 48 percent to P15.57 billion from P30.44 billion in 2016, according to the Philippine Economic Zone Authority.

The IT-BPM industry grew $2.2 billion in revenues employing about 1.14 million in 2016.

Department of Finance (DOF) Assistant Secretary Paola Alvarez, in a statement, stressed the urgency for government to modernize the tax incentives system for businesses to level the playing field, especially for the benefit of over 800,000 registered local corporations that have been paying regular taxes.

She said the government has been providing incentives for 50 years “and we are among the most generous as we, for example, grant in perpetuity a five percent tax on gross income earned, in lieu of all taxes, including VAT and local taxes. However, foreign direct investment flows, despite improving in recent years, remain pale when compared to Asean peers.”

Alvarez said the government acknowledges the role of incentives in attracting investments, thereby contributing to job creation and exports generation.