Philippine BPOs face local tax conflicts, risking investments
MANILA, PHILIPPINES — Philippine business process outsourcing (BPO) firms are raising alarms over local government units (LGUs) collecting taxes despite industry-wide exemptions under the CREATE MORE Act, warning that the policy inconsistencies could increase operating costs and influence global investment decisions, BusinessWorld reports.
Philippine BPO operating costs jump amid LGU tax disputes
The IT and Business Process Association of the Philippines (IBPAP) said that ignoring the CREATE MORE exemptions could raise operating costs by 15% to 20%, potentially altering decisions about where companies locate their operations.
“These concerns [escalated] to global headquarters and influence location decisions,” said IBPAP Chief Operating Officer Celeste Ilagan.
The group criticized LGUs for disregarding exemptions granted by the CREATE MORE Act and highlighted inconsistencies in tax assessments.
According to the Philippine Department of Finance (DOF), Republic Act No. 12066, or the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE), makes the Philippines’ tax incentives regime more globally competitive, investment-friendly, predictable, and accountable.
“CREATE MORE will open the floodgates of more high-impact investments both from our international investors and domestic enterprises. This will not only attract new investments and grow existing businesses to make more money but also enable us to create more high-quality jobs,” Philippine Finance Secretary Ralph Recto said.
Some cross-border services are also subject to a 25% final withholding tax plus a 12% value-added tax, according to the Bureau of Internal Revenue’s Memorandum Circular 05-2024, as applied in certain areas.
Impact of AI on Philippine BPO jobs and cybercrime laws
Beyond taxation, the IBPAP stressed the need to reskill workers amid rapid artificial intelligence (AI) adoption, which poses risks to entry-level and voice-based services.
“If there is no talent, there will be no locators. We need to embed digital capability across the workforce and accelerate industry-aligned training,” said Frankie Antolin, IBPAP executive director for Talent Development and Attraction.
The association also called for amendments to the Cybercrime Prevention Act of 2012 to allow IT-BPM firms to directly file cases when fraud affects foreign clients.
“Currently, companies may bear financial liability but lack prosecutorial standing, limiting deterrence, and weakening client confidence,” IBPAP noted.
With the IT-BPM sector supporting over 250,000 workers in Visayas and Mindanao, even small job losses in provincial hubs could significantly impact local economies.
IBPAP requested that government authorities should expedite their approval process for enterprise-based training programs, nationwide AI literacy initiatives, and government-sponsored reskilling programs, while they should provide specialized assistance to both small and medium enterprises (SMEs) and local business process outsourcing companies.
The industry requires resolution of its tax and workforce issues to achieve its goal of US$42 billion in revenue and 1.97 million employees by 2026. The Philippines also needs to develop its local regulations to match national incentives while building its digitally skilled workforce to maintain its global outsourcing market advantage.
