Un­cer­tainty kills BPO growth

The Philippine Star - - BUSINESS - REY GAMBOA

The Busi­ness Process Out­sourc­ing (BPO) sec­tor in the coun­try is be­set by un­cer­tain­ties aris­ing from long­stand­ing de­lays in the pas­sage of the sec­ond pack­age of the Philip­pine gov­ern­ment’s Com­pre­hen­sive Tax Re­form Pro­gram (CTRP).

The sec­ond pack­age, which was in­tro­duced a year ago, was passed in the House of Rep­re­sen­ta­tives al­most in the orig­i­nal form that the Depart­ment of Finance pro­posed, but had been sub­jected to a host of ques­tions at the Se­nate level.

Bandied to be rev­enue neu­tral, the pro­posed sec­ond pack­age would re­duce cor­po­rate in­come taxes, but in­tro­duce sev­eral other mea­sures to ra­tio­nal­ize in­cen­tives given to com­pa­nies. The DOF has said that the ra­tio­nal­iza­tion, would ben­e­fit small and medium en­ter­prises, and cre­ate as many as 1.4 mil­lion jobs over the next decade.

How­ever, a num­ber of in­dus­tries — in­clud­ing the BPO sec­tor — would be af­fected with the pro­posed mod­ern­iza­tion of tax in­cen­tives, par­tic­u­larly the planned move to a 28 per­cent cor­po­rate in­come tax as­sess­ment from one that is based on gross in­come earned (GIE).

Com­pa­nies lo­cated in ex­port pro­cess­ing zones cur­rently en­joy a five per­cent GIE.

Lost mo­men­tum

For Philip­pine-based BPO com­pa­nies that serve global clients and com­pete fiercely for mar­ket share with com­pa­nies based in other coun­tries like In­dia, a di­lu­tion in fis­cal in­cen­tives could af­fect their abil­ity to hire more peo­ple and earn more.

The bad tim­ing for this pro­posed change comes at a time when US Pres­i­dent Trump con­tin­ues with his pro­tec­tion­ist stance to bring back jobs to Amer­i­cans, and China’s ag­gres­sive steps to be­come a ma­jor con­tender in the world’s BPO sec­tor.

In ad­di­tion to all these, an ex­po­nen­tial out­burst in ar­ti­fi­cial in­tel­li­gence in­no­va­tions has prompted many BPO clients to con­sider mi­gra­tion of parts of their busi­ness pro­cesses to the dig­i­tal realm.

As a re­sult, the in­dus­try has re­ported los­ing its mo­men­tum, with growth last year be­low tar­gets that had been set in its five-year roadmap.

Mov­ing for­ward

The DOF is op­ti­mistic that the Se­nate will be able to con­clude its de­lib­er­a­tions on the sec­ond pack­age of the pro­posed tax re­forms be­fore ad­journ­ment in the first half of the year, al­though it ac­knowl­edges that the sched­ule may be tight given the forth­com­ing May elec­tions where 12 of the 24 Se­nate seats will be con­tested.

With all the po­si­tion pa­pers that have been sub­mit­ted by the pri­vate sec­tor that need to be con­sid­ered by the Se­nate in fi­nal­iz­ing their ver­sion, the risk of hav­ing a shab­bily-crafted law sent to the Pres­i­dent for sign­ing is very pos­si­ble if our law­mak­ers try to rush things.

On the other hand, the dis­trac­tion posed by the com­ing elec­tions may force the Se­nate to post­pone de­lib­er­a­tions on the pro­posed law, thereby pro­long­ing the un­cer­tain­ties al­ready af­fect­ing the health of the BPO sec­tor, and even other in­dus­tries that sig­nif­i­cantly con­trib­ute to eco­nomic growth.

Mov­ing for­ward, notwith­stand­ing the odds that af­fected busi­nesses face with the law’s de­lay, the sig­nif­i­cance of the BPO sec­tor to the coun­try in terms of job cre­ation as well as rev­enue earn­ings can­not be scoffed at.

Ap­prox­i­mately 1.2 mil­lion peo­ple are di­rectly em­ployed in BPOs, with rev­enues last year es­ti­mated at about $24 bil­lion. Its con­tri­bu­tion to job cre­ation alone has en­abled the coun­try to pare down unem­ploy­ment stats, in­crease the ranks of the mid­dle class, and con­trib­ute to in­creased con­sumer spend­ing.

Strate­gic im­por­tance

It is time to heed the sec­tor’s plea to go easy on the pro­posed re­moval of the GIE as­sess­ment and give more time for the BPO com­pa­nies to tran­si­tion to the new cor­po­rate in­come tax scheme.

The as­so­ci­a­tion of BPO com­pa­nies are also ask­ing the gov­ern­ment to in­clude the sec­tor in the strate­gic in­vest­ment pri­or­i­ties plan, as well as to re­tain the zero val­ueadded tax rat­ing for lo­ca­tors in spe­cial eco­nomic zones whose ex­port sales com­prise 30 per­cent of to­tal sales.

Re­cent de­vel­op­ments now point to a resur­gence of the coun­try’s BPO sec­tor in the next few years, pri­mar­ily be­cause of the weaker peso that has made wages of US cit­i­zens more ex­pen­sive com­pared to what Filipinos re­ceive.

Also, the re­lo­ca­tion of Amer­i­can BPO com­pa­nies in other coun­tries dur­ing the past cou­ple of years has only high­lighted the fact that Filipinos per­form bet­ter than their coun­ter­parts in other coun­tries, es­pe­cially now that clients are de­mand­ing deeper en­gage­ment with cus­tomers.

Dig­i­tal au­to­ma­tion, as things are turn­ing out, has only given BPO clients with a thirst to im­prove op­er­a­tional ser­vices and en­hance trans­parency in their re­la­tion­ship with ser­vice providers.

The ground­break­ing of new in­fra­struc­ture projects un­der the gov­ern­ment’s Build, Build, Build pro­gram is an en­cour­ag­ing sign for BPO com­pa­nies who had be­come con­cerned with ac­cess to other cities out­side of Metro Manila. At no other time has the prospects of the BPO sec­tor looked so vi­brant.

Prop­erty con­sul­tants, cog­nizant of these lat­est in­di­ca­tors, are pre­dict­ing a short­age in of­fice space by 2021 if the gov­ern­ment, through the Philip­pine Ex­port Pro­cess­ing Author­ity (PEZA), will not ac­cel­er­ate the open­ing up of new zones.

There had been a slow­down in the con­struc­tion of new build­ings for of­fice space with in­di­ca­tors five years ago when multi­na­tional BPO com­pa­nies were look­ing at di­ver­si­fy­ing their op­er­a­tions to other coun­tries out­side of the Philip­pines.

If the gov­ern­ment acts fast enough, though, real es­tate de­vel­op­ers may be able to re­spond quickly to pro­vide the nec­es­sary sup­port for the lo­cal BPO sec­tor. A sec­ond wind for our call cen­ters and busi­ness ser­vices providers could breathe more easy with­out all the un­cer­tain­ties.

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Should you wish to share any in­sights, write me at Link Edge, 25th Floor, 139 Cor­po­rate Cen­ter, Valero Street, Sal­cedo Vil­lage, 1227 Makati City. Or e-mail me at rey­dgam­[email protected]­hoo.com. For a com­pi­la­tion of pre­vi­ous ar­ti­cles, visit www.Bi­zlinksPhilip­pines.net.

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