By Elijah Felice Rosales, September 4 2019; Business Mirror

Image Credit to CNN Philippines

THE information-technology and business-process management (IT-BPM) industry is seen to benefit from the threat of higher labor cost in the United States, but the looming rationalization of fiscal incentives could neutralize that gain, a business leader said on Tuesday.

IT and Business Process Association of the Philippines (Ibpap) President Rey E. Untal said there is less concern today on the United State’s protectionist policies as there was at the beginning of the Trump administration. He argued the IT-BPM industry weathered the protectionist storm that hit it hard in 2017, and is now looking at gaining from the fallout of a higher labor cost in the US, where there are mounting calls for a $15 minimum wage.

However, he admitted fears of capital flight and loss of jobs continue to haunt the industry, as IT-BPM firms hold their breath in anticipation of an overhaul in the incentives regime.

“The uncertainty on fiscal reform is still there. The protectionist policy is becoming less and less an issue. In fact, there are movements in the US where the minimum wage is being pushed at the federal level, not only on the state level.

“If cost escalates in North America, then [there’ll be a] trickle-down effect, countries like the Philippines, India and others will be more attractive as a result,” Untal said on the sidelines of Digital Disruption 2.0 in Pasay.

On fiscal reform, Untal is referring to the government’s plan to reduce corporate income tax (CIT) at the expense of tax perks enjoyed by firms operating in economic zones.

As proposed under the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, CIT rate in the Philippines will be lowered to 20 percent by 2029, from 30 percent at present. In exchange, incentives granted to locators, particularly the 5-percent tax on gross income earned (GIE) in lieu of all local and national taxes, will be stripped away.

Locators warned they might move out of the Philippines if their incentives are removed, and such could mean capital flight and job losses for the country.

The uncertainty arising from the plan is one of several factors that prompted the industry to revise its growth targets indicated in its road map. The road map projected IT-BPM firms to create over 100,000 jobs annually to employ a total of 1.8 million workers by 2022.

According to Ibpap, the industry employs an estimated 1.23 million workers as of last year, growing 5.1 percent from 2017.

Further, industry revenue improved to between $24 billion and $24.8 billion, from $23.4 billion, based on records from Ibpap. Under the road map, the industry is expected to generate $38.9 billion by 2022, from $22.9 billion in 2016.

“The question now is the 8 percent to 9 percent [yearly] growth that we have in the road map, can that still hold? The answer should tell us the maximum trajectory assuming all the interventions hold, including our concern on uncertainty and what will be worst case and the likely case. This was how it was framed when we prepared the terms of reference [of the study to revise industry targets],” Untal added.

The Ibpap chief said the preliminary results of the study will be presented to him on Thursday. After that, Untal will discuss with the Ibpap board what steps and  changes it will introduce to the road map based on the results.