News: Taxman Chases BPO Managerial and Technical Employees – 15% Preferential Rate Threatened!

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The new Duterte tax reform program will lower the taxes of regular agents: hurray for this! But apparently, this new deal may remove the 15% Preferential Tax Rate (PTR) given to managerial and technical employees in Regional Operating Headquarters (ROHQs) of multinational corporations.

Here are a bunch of companies that have set up ROHQs in the Philippines:

  • Unilever
  • Chevron
  • Procter & Gamble

According to sources, this change in income tax treatment may affect as much as 5,000 highly skilled BPO employees.

What Are ROHQs?

ROHQs are facilities deployed by multinational corporations to cater to affiliates/subsidiaries in the region. ROHQs primarily provide the following services:

  • Marketing control, and sales promotions
  • Research and Development
  • Corporate finance advisory

Note that the roles above are performed by highly skilled BPO employees, high value manpower that the Philippines may lose to other countries should their taxes increase. pushAUX.com

The Tax Man Comes to Fuck Shit Up!

Currently, BPO managerial and technical employees working for ROHQs are subject to a flat 15% tax rate – this to attract good talent, which multinational corporations need so that their local deployment will succeed.

Removing the 15%, and replacing it with the standard 32% tax rate for the same pay grade will negatively impact things, a lot.

Anonymous source… Who is most likely working for a BPO advocacy group:

 

“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… 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.”

Our anonymous source, let’s call him Bob, says that the removal of the 15% Preferential Tax Rate would equate to the increase in a company’s operating cost by as much as 7%.

They Got Skills! And They May Just Leave The Philippines to Get Away from Higher Taxes!

ROHQs registered under the Board of Investments (BOI) have approximately 25,000 employees, and around 20% (the aforementioned 5000) are eligible for the 15% PTR.

These guys, they earn more than P975K/year. Yes, they earn a lot, but they also are very key in keeping a local ROHQ alive and running.

Bob, the anonymous source:

 

“If the cost of running an ROHQ 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.”

Well, we already dodged a bullet. The Duterte tax reform program will no longer target the VAT incentive of BPO’s, but then it still threatens this very small but important segment of the industry. Simply put: ROHQs need skilled talent to run efficiently, and if the skilled talent leaves, we may see some closures which leads to job loss.