5,000 elite jobs in Philippines' BPO sector at risk

The Philippines stands to lose around 5,000 top caliber and financially rewarding jobs in a subsector of the business process outsourcing (BPO) industry if the government insists on removing a perk under the first package of its tax reform program, an industry source said.

To compensate for the effects of lowering personal income taxes, the Duterte administration seeks to increase consumption taxes and remove incentives enjoyed by companies, including the 15-percent preferential tax rate (PTR) they provide to managerial and technical employees in regional operating headquarters and regional headquarters (ROHQs/RHQs).

ROHQs and RHQs are established by multinational companies (MNCs) to cater to affiliates, subsidiaries, or branches in the global market. These services include, for example, corporate finance advisory, research and development, and marketing control and sales promotion—all of which are considered high value jobs that stand out in the local BPO industry known mostly for its voiced-based services.

Under the current tax regime, the annual salaries of these highly sought-after managerial and technical jobs are subject to a 15-percent tax rate. Anyone else with the same pay grade and in a different industry gets slapped with a 32-percent tax rate.

This preferential treatment was particularly made in order to attract top-tier talent for the growing ROHQ/RHQ subsector.

The source, who asked not to be named, said the perk has been effective so far in attracting MNCs. Some Fortune 500 companies, including Unilever, Chevron and Procter & Gamble, have even selected the Philippines as their “destination of choice.”

“We can potentially lose a lot of top Filipino talent to other neighboring countries with lower income tax rates like Singapore, Malaysia, and Hong Kong,” the source said.

Sans the preferential treatment, these jobs would have to be subjected to the same rates indicated in the first package of the tax reform bill currently being deliberated in Congress. The bill seeks to reduce to 25 percent the maximum personal income tax.

Based on the source’s estimates, this would lead to an increase in a company’s operating cost by 7 percent, a “very substantial” hike given that the subsector is generally not capital intensive.

“It should be noted that the passage of this bill not only endangers existing jobs to attrition. The more serious concern is losing the jobs per se because these ROHQs may either scale down or close down operations because they are no longer viable delivery centers with cost structures increasing,” the source said.

The subsector registered under the Board of Investments (BOI) has approximately 25,000 workers. Of this figure, only 20 percent or around 5,000 can tap the 15-percent PTR.

These individuals are those whose annual income exceed the minimum threshold of P975,000 (US$19,400)  set by the Bureau of Internal Revenue. This is a standard used to determine which jobs are “professionally challenging.”

Of the PTR-eligible jobs, nearly all are held by Filipinos who can easily go abroad for better opportunities. The source, however, described the perk as a corporate incentive rather than an employee salary package.

Removing the PTR would have the “unintended, but even more alarming, effect of contracting the whole ROHQ/RHQ industry,” the source said.

“If the costs of running an ROHQ/RHQ operation in the Philippines increases, it will be easy for parent companies or affiliate clients to flow work from the Philippines to … other parts of the world,” the source said.