The long-term appeal of the Philippines’ tax incentives for the information technology and business process management (IT-BPM) sector could weaken without critical policy reforms, the World Trade Organization (WTO) warned in a recent study.
While acknowledging that the country’s fiscal perks match those of its Southeast Asian peers, the trade body pointed out that tax breaks alone cannot guarantee sustained foreign direct investment.
“Incentives and fiscal benefits remain a critical component of the government’s IT-BPM promotion effort,” the WTO said.
Although tax holidays, special deductions, and duty exemptions offered by investment promotion agencies help lure global companies alongside a skilled English-speaking workforce, the study noted that non-fiscal hurdles threaten future expansion.
“Past research suggests that fiscal incentives alone are insufficient unless accompanied by improvements in infrastructure, labor quality, and regulatory efficiency,” it said.
Infrastructure remains a primary concern for local operators, with electricity costs ranking among the second highest in the region and internet access pricing nearly four times higher than competing hub India.
Furthermore, the rapid rise of artificial intelligence demands an immediate focus on upskilling workers for high-value services.
“Despite its success, the industry faces persistent challenges that could hinder its long-term competitiveness. Infrastructure costs, regulatory challenges, and emerging talent shortages, especially in high-value segments, require targeted policy interventions,” the WTO said.
To maintain market leadership, the report urged government officials to boost investments in digital networks while forging tighter partnerships with academia and tech firms to prepare the local talent pool for automated workflows.
“By addressing growth constraints, leveraging its comparative advantages, and future-proofing its workforce for AI and automation, the country can solidify its role as a major global hub for IT-BPM services,” the WTO said.
The study aligns with recent outlook adjustments from the IT and Business Process Association of the Philippines (IBPAP), which lowered its 2028 best-case revenue projection from $58.9 billion to $50.5 billion due to intensifying regional competition and AI integration.
Headcount expectations were similarly trimmed from 2.5 million to 2.14 million digital workers by 2028, though industry leaders remain confident in hitting their annual revenue baseline of $42.3 billion this year.