News: Philippine BPO industry job growth targets threatened by incentive removal!

Failing to hit targets, that’s the first sign of trouble.

[] The Information Technology and Business Process Association of the Philippines (IBPAP) has expressed concerns that the local BPO industry may fall short by as much as 40% in its 2018 job creation target.

The cause: TRAIN, and the high tax regime environment it has created.

Rey C. Untal, IBPAP President-CEO


“There’s a balancing act between job generation and tax revenue creation. There’s an inflection point. You make us more expensive than we are, then our ability to be effective in generating jobs will also be affected.”

The Irony of the TRABAHO Bill!

As per IBPAP, the latest round of tax reform legislation, aka the TRABAHO bill, may make future BPO projects competitive, but it will negatively impact the operations of existing firms – specifically the incoming treatment shift of corporate income tax (CIT).

Rey C. Untal/IBPAP


“The jump from the 5% GIE (gross income earned) to a 28% CIT, will increase your tax by as much as threefold. That impacts your cost structure. The only way that you can recover that cost structure is to pass it on to your customers. But if you pass on the cost to your customers then your perceived value versus cost becomes higher also. So that’s what we are avoiding… If we move to a regime where our cost model will increase substantially, then our ability to create jobs will be impacted by 40%.”

The government has chosen to earn more tax revenue versus the creation of more jobs.

Rey C. Untal/IBPAP


“So instead of growing 100,000 a year, we could grow by 60,000. We could grow by 50,000. I don’t know… This conversation around the TRABAHO bill and about the bigger context of the BPO industry needs to be put together. This industry’s one critical attribute is the ability to generate jobs.”

Monster Statistics!

Based on the employment index, the Philippine IT-BPO sector shrunk by 4% in Q2 of this year – last June, hiring activity in this high value sector declined by 7%.

With IBPAP numbers, the Philippine BPO industry has under its employ (directly-indirectly) around 5M Filipinos, which is expected to rise to 7.6M million by 2022 – that is if all goes well.

BPO’s and the New Middle Class!

Rey C. Untal/IBPAP


“This industry is also one of the largest creators of the new middle class… Our growth has to be Philippine-wide… That’s why, right now, we are employing an excess of a quarter of a million Filipinos in 21 to 23 provinces.”

By 2022, employment in the provinces is expected to double to 500,000. This relieves Manila from the additional influx of workers that the city clearly cannot sustain anymore.

The local BPO industry was so good that, just in the past decade, the Philippines has laid claim to 11-12% of the global market share. This is not an easy accomplishment – which may be obliterated by TRABAHO in the years to come.

Uncertainty = Devastation

Yes. The simple effect of uncertainty is this: it scares away business locators from setting up shop in the Philippines. This is what the TRABAHO initiative is doing.

Rey C. Untal/IBPAP


“People seem to be fixated with the idea that this industry and other industries will be impacted once TRABAHO is in place. That’s not true. In reality, all of this ambiguity about the rationalization of incentives has already created an impact in terms of uncertainty… Investors, when they now look at the Philippines, are now aware that the incentive scheme as they have understood it will no longer be there next year…”

Expansion plans that would have led to additional job creation have been put on hold pending the finalization of round two of the tax policy overhaul (TRAIN).

IBPAP for its gallant part, is negotiating for a 10-year transition period for the removal of current incentives versus the proposed five-year maximum period. IBPAP is also pushing for the retention of the zero VAT rating for locators whose export sales comprise 30% of total sales.