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News » Philippine IT-BPM sector awaits new law for tax clarity

Philippine IT-BPM sector awaits new law for tax clarity

Philippine IT-BPM new law
Photo from Official Gazette Philippines

MANILA, PHILIPPINES — The Information Technology and Business Process Management (IT-BPM) industry in the Philippines is on the edge of significant legislative changes as it awaits the amendment of Republic Act (RA) 11534, known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law. 

Industry body IT and Business Process Association of the Philippines (IBPAP) is particularly concerned with the tax burdens imposed by local government units (LGUs) and other regulatory challenges that affect the sector’s operational costs and competitiveness.

Proposed amendments to enhance the business environment

During a recent Senate hearing, IBPAP President Jack Madrid outlined the industry’s proposed amendments to the CREATE law, encapsulated in Senate Bill (SB) 2654, dubbed the Create More (Maximize Opportunities for Reinvigorating the Economy) proposal. 

Madrid expressed the sector’s urgent need for these amendments, emphasizing the necessity for “clarity, stability, and predictability of our incentives regime.”

One critical issue highlighted by Madrid concerns a contentious section of SB 2654 that proposes a 2% duty on registered business enterprises (RBEs) using the enhanced deduction regime. 

Describing the duty as “onerous,” Madrid argued that it could deter enterprises from opting for the enhanced deductions regime, compounding the tax burden by allowing LGUs to collect additional fees.

“With the current wording in the bill, an LGU may still collect other fees, which is actually happening quite a bit these days. And this is just the LGU tax,” Madrid explained.

Technical obsolescence and VAT zero-rating

Another significant proposal from the IT-BPM industry addresses technology’s rapid obsolescence. Madrid pointed out that due to rapid technological advancements, equipment such as PCs and laptops often become redundant before their typical five-year lifespan.

The industry seeks amendments that would exempt RBEs from paying taxes and duties on the book value of prematurely obsolete equipment.

Additionally, Madrid called for more precise language in the legislation to ensure that investment promotion agencies (IPAs) are designated as the authorities to determine the extent of coverage for VAT zero-rated items purchased locally. 

This change aims to reduce the discretion currently exercised by the Bureau of Internal Revenue (BIR) over VAT zero-rated purchases, which can lead to inconsistencies and uncertainties for businesses.

Telecommuting and economic impact

Madrid particularly praised the proposed Section 9 of SB 2654, which amends Section 309 of the CREATE Law. This amendment would allow RBEs in economic zones and freeports to implement telecommuting programs, including work-from-home arrangements, with a 50-percent threshold. 

Madrid views this as a crucial development that could encourage existing companies to expand under Philippine Economic Zone Authority (PEZA) registration.

Madrid concluded by stressing the broader economic implications of the proposed amendments, noting their potential to create over 1 million jobs and significantly boost the country’s foreign exchange revenues. 

“The proposal to amend Create is a very important endorsement of the IT-BPM industry and our ambition to generate more than 1 million more jobs to the country and increase foreign exchange revenues by over $29 billion,” he said, highlighting the potential contribution to over 8 percent of the Philippines’ gross domestic product.

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