Indian business process outsourcing companies sought from Secretary Ramon Lopez of the Department of Trade and Industry clarity on the Comprehensive Income Tax and Incentives Rationalization Act (CITIRA), saying the uncertainty in the past three years has caused them to hold back on their plans.
The uncertainty, however, may linger until next year as Lopez hinted the passage of CITIRA would be in the first quarter of 2020.
The pendency of the tax reform and the recently passed administrative order (AO) suspending approval of new economic zones in Metro Manila has made the country’s largest Indian BPO company, Wipro Philippines Inc., more conservative in its expansion plans in the country.
Lopez told delegates of the Philippine-India Trade Consultations in Makati last Friday, once the remaining issues in CITIRA such as the transition towards corporate income tax (CIT), the bill will be passed “hopefully by December.”
“But given the number of hearings (at the Senate) left, it (passage of CITIRA) might slide to the first quarter of next year. There is the possibility it can be finished before the December break,” Lopez said.
Lopez was responding to a query of Aseem Roy, country head of Wipro, on the timeline of the CITIRA.
“When we invested in the Philippines there was a full incentives available and over the last few years, there was TRAIN (Tax Reform for Acceleration and Inclusion) 1, then TRAIN 2 which became TRABAHO (Tax Reform for Attracting Better and Higher Quality Opportunities), then there was AO 18 and then CITIRA. There is a bit anxiety. We want policy stability. We don’t want policy paralysis,” Roy later told reporters.
He added “What we want from DTI — this is simply ease of doing business — is give us clarity so we can plan our strategies accordingly. You tell us after one year these incentives are gone so we can plan accordingly because when we sign a deal with a customer, we assume there will be no changes… the incentives will be there. (Give us) the date and the timeline that the policy will be implemented from say quarter two or three of 2020 and help us plan better…whether (the incentive is) five years tax holiday or a sunset provision…”
Roy added the company “will continue to do business… we will continue to be bullish but there is uncertainty.”
He said Wipro for now is safe from the AO 18 as 75 percent of its operations is in Cebu where it has three sites.
The company employs 8,000 with about 2,000 added just last year.
“Thankfully we have the right model because we are big in the provinces. If I were to invest in Manila, I have to think twice. As a third-party service provider….if my clients want to set up in Manila but the incentives are not there for me… that is lost opportunity.. that (investment) can go to India, Mexico or some other place,” he said.
Roy said if government wants companies to invest outside the National Capital Region, there has to be infrastructure to support new industries and the scale of business.
“It is not just about creating employment,” he said.
As a foreign investor, Wipro is keen on investing at a time when the country is competing with India and Mexico.
“There is a reason why we invested here, the cost advantage, tax holidays… we want to keep it competitive,” said Roy, adding Malaysia and India offer longer tax breaks.