TRAIN removes preferential tax rates for new ROHQs
Multinational companies establishing their regional operating headquarters (ROHQs), a subsector under the business processing outsourcing (BPO) sector, in the country starting January 2018 will no longer be entitled to tax incentives under the current Senate Bill on tax reform.
Senate Bill No. 1592 or the proposed Tax Reform for Acceleration and Inclusion (TRAIN) has repealed the 15 percent preferential tax rate for employees of ROHQ, as well as those of offshore banking units and petroleum service contractors.
However, it retains the treatment for those currently enjoying the said incentive for ROHQs existing prior to January 1, 2018.
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, AsiaPacific Region, and other foreign markets.”
Data submitted by the Department of Finance (DOF) showed that as of 2015, there were 1,495 RHQ/ ROHQ employees who enjoyed the 15 percent preferential rate.
According to the DOF and the Bureau of Internal Revenue, there is only about R200 million to R300 million for the next five years. ROHQs are mostly multinational companies (MNCs).
During the hearing on the TRAIN bill, 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 percent 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 percent 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.
In a statement, Senator Joel Villanueva has also supported the call of the IBPAP for the retention of tax incentives for the BPO sector.
“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.
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 $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 stressed.
“Making available the 15 percent preferential rate to ROHQs that will set up in the country in the next five 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.
The IT-BPM Roadmap 2022 aims to generate 1.8 million in new direct jobs and $39 billion in revenues in 2016.
Of this revenue projection, the contact center or the voice sector is expected to grow 8.2 percent to contribute $20.4 billion of total revenues.
The Roadmap 2022 articulates lots of headwinds like risks of the use of artificial intelligence in hitting the 2022 targets. But, there are unforeseen events that cannot be predicted to happen, like threats to security.