One of the economic success stories of the decade has been the phenomenal growth of the country’s Business Process Outsourcing (BPO) industry. What was just an oddity (what with its people working nights, and then sleeping in the daytime) in the business landscape, has now become a permanent picture in the nation’s economic fabric.
Let’s look at some of these figures for a second (from the IT and BPO Association of the Philippines):
• As of the end of 2016, there were 1.2 million Filipinos employed by the industry (projected to be 1.8 million in 2022)
• The industry earned $22 B in revenue for the same period ($40 B in 2022).
• This means that for each person employed, the country earns $18.3k in export receipts. In 2022, this per-capita export sales will rise to $22.2k.
• The 21 percent increase in export revenue per person is a result of increasingly more complex and value-added jobs coming to the Philippines.
When we examine these numbers, it’s hard to argue that BPO is not the country’s brightest hope for the future. It’s even more difficult to imagine what we would be doing, if the industry were to disappear tomorrow.
When, however, we look at what the current dispensation is doing to encourage the sector to keep on expanding at the current phenomenal pace, it’s not easy to find evidence of their enthusiasm. Just look, for example, at what the recent TRAIN Law contains, which affects the sector in a significant way.
One of the attractions that brought many BPO locators here was the attractiveness of the incentives that we were offering. Through the Philippine Economic Zone Authority (PEZA) and the Department of Trade and Industry’s Board of Investments (BOI), foreign investors locating their BPO operations in the Philippines were accorded a host of investment incentives, which made it financially viable for them to locate here, than for example, other BPO destinations like India, Eastern Europe and Latin America.
The TRAIN law, however, threatens to bring the speeding BPO locomotive to a screeching halt, thanks in no small part to the decision to eliminate many of the provisions bestowed to investors in the sector.
One of the main arguments being put forward by the government is that the current incentive regime is duplicative and confusing. So, they are choosing to rationalize and integrate the various regimes (primarily from PEZA and the BOI) into one. The other argument is that the incentives far outweigh the economic contributions of the investors, and therefore they must be reduced to swing the balance in the country’s favor.
It is, however, not difficult to see where the fallacy lies in this whole drama.
All calculations and analyses by the proponents always look at benefits accrued versus contributions foregone (so for example the value of jobs created, export revenues realized, versus the amount of income taxes foregone).
It probably should not be too difficult to see why this assumption is misleading.
The big IF in all this is, should the incentives become less attractive, will investors still choose to come to the Philippines? Because if not, then there are no taxes to be collected, to begin with. It is not a saving when, in the first place, there is no income to be saved, correct?
So let’s get this right. By trying to save a few centavos through reducing incentives and increasing taxes on investors to the sector, we may end up at some point soon, losing the whole peso instead.
(http://asbbforeignexchange.blogspot.com & http://twitter.com/asbbatuhan)