WHILE scrapping special tax rates could discourage investors and affect the country’s competitiveness score, business and industry leaders believe talent availability is still a major factor in every business decision.
In a tax advisory dated Jan. 31, the Bureau of Internal Revenue (BIR) reminded workers employed by regional operating headquarters and regional headquarters (ROHQs/RHQs) multinational companies; offshore banking units, and petroleum service contractors that they are now subject to regular income tax rates.
The Tax Reform for Acceleration and Inclusion (Train) bill had originally maintained the special personal tax rate of 15 percent of gross income for these groups of workers, but that provision was among those vetoed by President Rodrigo Duterte when he signed the first package of the Train law.
The order to remove the tax perk will even affect workers employed in the business process management industry.
Cebu Business Club president Gordon Alan Joseph said scrapping tax breaks for multinational headquarters will not increase the country’s competitiveness. He noted the country’s income tax rates are still among the highest in Asia and this has affected its foreign direct investments (FDI) competitiveness.
“While FDI has grown to $8 billion, some of our neighbors have achieved much more. We should be doing everything we can to attract FDI because doing business in the Philippines is not easy at all,” said Joseph.
“The implication might be loss of competitiveness to attract RHQ or ROHQ to locate in the Philippines, since these companies will always look at where they can get the most value of their investment,” said Cebu IT-BPM.Organization (CIB.O) managing director Wilfredo Sa-a.
However, he pointed out that while investors look at tax rates, they also consider talent availability whenever they make bold business decisions.
“Availability of talent will always be the main reason why investors come, so we should always be ready,” said Sa-a.
Besides taxes, Mandaue Chamber of Commerce and Industry president Stanley Go said there are several considerations that weigh more such as connectivity, availability of talent, and quality and standard of living.
“I believe that even with these taxes, if the three mentioned above score high, they would gladly locate their regional offices in Cebu and in the Philippines,” said Go.
President Duterte said he vetoed that Train provision as it violated the equal protection clause of the Constitution and the rule that the burden of taxation must be uniform.
Cebu, according to Sa-a, remains an attractive destination for IT-BPM investments, with some players already moving up to offer higher value services.
“So far, Cebu still had a healthy growth in 2017,” said Sa-a. “Most of our growth last year was related to higher value services.” Cebu’s young talent pool, coupled with improved infrastructure like the Mactan-Cebu International Airport expansion in four months time, give the province the competitive edge.
Export in services declined to 12.6 percent in the fourth quarter of 2017 from 19.9 percent in the previous quarter.
“We must note that a major contributing factor to this decline was miscellaneous services, which includes the BPO industry—business processing outsourcing. We can take this as an indication that the current market profile of the BPO sector is ripe to move into higher value added services,” said Ernesto Pernia, the country’s Socioeconomic Planning Secretary.