Salceda asks DOF, BIR: make tax rules for BPOs with WFH simpler to keep BPO sector boom

September 29th, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) has asked the Department of Finance and the Bureau of Internal Revenue for “a simplified and rationalized system of requiring and validating documentary proof for allowable deductions under the CREATE law,” given the shift of BPO companies from the Philippine Economic Zone Authority to the Board of Investments to continue receiving tax perks while sustaining work-from-home arrangements.

In a September 25 letter to Finance Secretary Benjamin Diokno, Salceda asked for simpler and clearer rules “In view of the impending shift to the Board of Investments by many new and existing BPOs.”

Under the CREATE Law, BPOs will be able to avail of enhanced deductions such as on power costs, labor costs, training expenses, and research and development, instead of the 5% special corporate income tax rate, should they register under the BOI.

“Some BPOs might actually pay even less tax as a result. But we also get more benefits out of their spending on research, training, and others. But, for BPOs to benefit from such incentives, the BIR has to make the rules simpler and clearer. Otherwise, there’s going to be plenty of room for negotiation and possibly corruption. Foreign BPOs in particular are spooked by that,” Salceda said.

In his letter, Salceda recommended that revenue issuances be released with the following elements:

1. Definition and examples of allowable deductions for training and research and development;
2. Simplified and online uploading system of documentary requirements for enhanced deductions;
3. Guidelines for automatic approval of enhanced deductions, in the direction of a more risk-based approach to validating self-declarations;
4. Remedies in the event of disallowance of requested deductions.
   “As you know, the crediting of such deductions will help the BPO sector upskill towards higher-value processes and services, to wean the Philippines off of voice services, which are expected to be a sunset sector within the BPO industry,” Salceda emphasized

Salceda also asked that the BIR ensure that the proper tax rate is imposed of BPOs. Those availing of enhanced deductions will be subject to either 25% or 20% corporate income tax rate, depending on their size and income. Salceda says he hopes there will not be over-assessment or the imposition of higher rates than small and medium BPOs should fall under.

“I also understand that a significant number of BPO companies are low-asset corporations with total assets of less than P100 million and total net income of less than P5 million. These tend to be small, provincial BPO companies. As such, they will fall under the 20% CIT rate, rather than 25%. I sincerely hope that the BIR will ensure that measures are taken so that undue assessments are not made against such corporations by BIR officers,” Salceda wrote.
In subsequent comments, Salceda added that “places like Albay have much smaller BPOs that are sometimes even family-run. So, I hope the BIR will be fair to them and impose the right tax rate, nothing more, nothing less.”

Salceda said that easy and clear tax compliance for BPOs will help preserve the country’s BPO bom.

The BPO sector, represented by IT and Business Process Association of the Philippines (IBPAP) President Jack Madrid said on Wednesday that the industry expects to grow annually by 8% in the next six years.

“The BPO sector is more crucial now than ever, as we need more foreign currency earnings to offset the effects of a very strong dollar on the peso. Easy and fair tax compliance is the least we can do,” Salceda said.