On July 10, 2017 KMC Solutions hosted the IT & Business Process Association of the Philippines' (IBPAP) Executive's Circle at our KMC Skydeck in Bonifacio Global City.
Rey Untal, President & CEO of IBPAP, discussed the current business environment in the Philippines with a central focus on the TRAIN Bill and its impact on the IT-BPM Industry; later opening the floor for discussion for 20+ IT-BPM leaders.
Amanda Carpo, Chief Legal Counsel & Co-Founder of KMC Solutions, closed the session with her insights about the TRAIN Bill from her perspective as a lawyer, which is summarized below:
The particular formula proposed by Congress has significant impact the IT-BPM industry, which are generally export enterprises. The current bill preserves VAT zero rating on sales of goods and services to export-oriented industries considered in "export sales" or constructive exports under the Omnibus Investment Code, but only until an enhanced VAT refund system is established and implemented, which gives the taxpayer a refund or denial of their application within 90 days from filing. Currently, the VAT refund process involves an administrative claim with BIR, being subject to audit, filing a petition in the Court of Tax Appeals- more often than not, paying the requisite filing fees, and a long wait, even if successful. Shortening the period for refund to 90 days is welcome, but zero rating "exports sales" or rather, indirect exports is better and eases the administrative burden for both BIR and Taxpayer.
Increasing the excise tax on petroleum products by 30-40% will increase the cost of all goods and services that rely on these commodities. Transportation, power, logistics, and production costs to name a few, will go up, with costs likely to be passed to businesses and consumers. The excise tax seeks to change consumer behavior, presumably to make us less reliant on petroleum and petroleum-based products, but sustainable alternative products and consumption patterns are not yet ready.
The proposed law mandates electronic interconnectivity of taxpayer information, requires simultaneous issuance and reporting of receipts to BIR through electronic point of sale systems (whose cost must be borne by the taxpayer), and opens the door to the automatic exchange of tax and financial information. Congress is following a global trend toward Big Data. While we will make strides toward aggregating information and automation, there are privacy concerns that need to be addressed. In addition, supporting these newly mandated systems will require infrastructure that is presently lacking.
A 90-day VAT refund system, electronic interconnectivity, and higher excise taxes while ideal, requires maximum efficiency from the BIR and a level of trust and transparency between the taxpayer and the BIR and the government that is nearly utopian. If the bill became law tomorrow, the adjustment for taxpayers would be painful. The drastic changes will require adaptation.
An attractive investment environment is one that is predictable, which is why the IT-BPM Industry could use some assurance that it will be business as usual. The data is there to prove that the IT-BPM industry has increased exports, employment, foreign direct investment, and stimulated the local economy, whether that is real estate, retail, or consumer spending. For the industries' clients, the investments made in the Philippines are long term. Maintaining the Philippines' competitive advantage and managing costs will be a challenge as the tax landscape changes.