Press Release / National Issues

On the Retention of Tax Incentives for the BPO Sector

Senator Joel Villanueva on Wednesday called for the retention of tax incentives being given to the business process outsourcing (BPO) companies such as Regional Operating Headquarters (ROHQs).

Republic Act No. 8756 defines ROHQ as “any foreign business entity formed, organized, and existing under any laws other than those of the Philippines whose purpose is to service its affiliates, subsidiaries or branches in the Philippines, Asia-Pacific Region, and other foreign markets.”

Under Senate Bill No. 1592 or the proposed Tax Reform for Acceleration and Inclusion (TRAIN), the 15% preferential tax rate for employees of ROHQ, as well as those of offshore banking units and petroleum service contractors, are repealed.

However, it retains the treatment for those currently enjoying the said incentive for ROHQs existing prior to January 1, 2018.

Villanueva, during the Senate interpellations on TRAIN, cited the data submitted by the Department of Finance (DOF) which states that as of 2015, there were 1,495 RHQ/ROHQ employees who enjoyed the 15% preferential rate. 

The senator further shared that the anticipated incremental impact if the ROHQ provision is removed, according to the DOF and the Bureau of Internal Revenue, is only about P200 million to P300 million for the next 5 years.

“Surely, the country stands to gain more than this estimated amount in the form of additional capital, employment, and business activities (direct and indirect) which will all be bolstered by the expected retention of much needed investor confidence,” Villanueva noted.

In response to the senator’s efforts, the IT & Business Process Association of the Philippines (IBPAP) reiterated its hope for the full support of the Senate to retain the said incentives.

“We humbly submit and request that the Senate reconsider the full reinstatement of the current provision on the 15% preferential rate, especially since we want to continue attracting the global Fortune 500 companies to set up their Shared Service Centers here. As one of the IT-BPM industry’s fastest growing subsectors, we are certain that there’s opportunity for more multinational companies (MNCs) to setup sites here in the Philippines,” IBPAP President & CEO Rey Untal said.

“The retention of the 15% preferential rate for ROHQ employees is an integral part of our efforts to continue attracting foreign investors to consider the Philippines as an investment destination,” Untal added.

The BPO industry is one of the fastest growing job-generating industries in the country. In 2008, it has produced 187,000 jobs and the industry expanded to generating 449,664 jobs in 2013. In 2015, the BPO sector generated 1.2 million direct jobs and US$22 billion in revenues.

“We don't want to discourage the BPO sector and hamper its robust growth by taking away their incentives. While this will add more revenue to the government, this may affect our country's competitiveness as major BPO destination,” Villanueva underscored.

“Making available the 15% preferential rate to ROHQs that will set up in the country in the next five (5) years ensures that we have at least a transition period during which time we can fulfill, to a certain extent, our commitment to those foreign investors that we have succeeded in attracting in the recent months while also enabling existing ROHQs to slowly and seamlessly institute changes,” Villanueva said.