BIR ready to collect regular income tax rates to ROHQs employees
Bureau of Internal Revenue (BIR) is now ready to collect regular income tax rates to oil contractors and employees of regional operating headquarters (ROHQs) of multinational companies, who previously enjoy tax incentives before Tax Reform for Acceleration and Inclusion (TRAIN) law was implemented.
"All employees of Regional Headquarters, Regional Operating Headquarters, Offshore Banking Units, and Petroleum Service Contractors and Subcontractors, enjoying preferential tax treatment prior to 2018 are now subject to regular income tax rates," BIR Commissioner Caesar Dulay said in his latest tax advisory.
"Thus, withholding taxes on compensation of these employees shall be enforced based on withholding tax table per revenue memorandum circular No. 1 2018," he further said.
TRAIN has particularly repealed the 15 percent preferential tax rate for employees of ROHQ, as well as those of offshore banking units and petroleum service contractors.
ROHQ are “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.”
As of 2015, there were 1,495 RHQ/ ROHQ employees who enjoyed the country's 15 percent preferential rates.
President Rodrigo Duterte earlier said that these employees should not worry because they will still enjoy a reduction in personal income tax.
“Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rates applicable to other individual taxpayers,” Duterte said.
This was reiterated by Finance Undersecretary Antonette Tiongco, who said at least 90 percent of ROHQ's employees will also benefit from the reduction in personal income tax set under TRAIN.
According to her, the ones that qualified for the 15 percent preferential tax rate are those earning R975,000 and up.
Under TRAIN, those earning more than R800,000 to R2 million annually, the tax rate would now be R130,000 plus 30 percent of the excess over R800,000, while for those earning R2 million up to R8 million, the rate is R490,000 plus 32 percent of the excess of over R2 million.
For those earning R8 million and up, the tax rate is R2.41 million plus 35 percent of the excess of over R8 million.
Most ROHQs are companies belonging to the business process and outsourcing (BPO) sector.
During the hearing on the TRAIN bill last year, the IT & Business Process Association of the Philippines (IBPAP) attempted to air its disappointment over the possible lifting of the said incentives.
IBPAP President and Chief Executive Officer Rey Untal earlier said the retention of the 15 percent preferential rate for ROHQ employees is an integral part of the country's efforts to continue attracting foreign investors to consider the Philippines as an investment destination.
Senator Joel Villanueva has supported the call of the IBPAP for the retention of tax incentives for the BPO sector.
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 said in an earlier report.