In the latter part of 2018, when the Belizean Government began dismantling the tax incentive regime offered to business process outsourcing providers, what proverbial leg did the BPOs have to stand on to defend their turf? How would this emerging industry – having created nearly 4,000 jobs in recent years and pumped millions of dollars into the local Belizean economy – respond to being blindsided by a government initiative that undermines the financial rationale for operating in the country?
The answer, of course, would have been to lean heavily on an industry association – a group built around promoting and supporting the local knowledge exporters’ community and, most importantly, defending the industry from attack. An association, leveraging the combined strengths of dozens of stakeholders in the ICT services community, would have used its muscle to insist on engaging more proactively with Prime Minister Dean Barrow and policy makers to find a reasonable way forward that modified or redirected the punishing thrust of the new regime, called the Designated Process Areas, or DPA. (The new law – gutting the previous benefits offered through the Export Processing Zone (EPZ) – was enacted last December). An association would have used that platform of engagement to bring about a deeper understanding around why you don’t want to be scaring off current and future BPO operators with a regressive tax plan that directly violates the incentive packages offered to exporters over the last twenty years. Finally, the association would have sought to rebuild trust so BPOs have reason to believe the government won’t change the rules of engagement again, at some point in the future.
To be fair, Mr. Barrow, who has been prime minster since 2008, and his policy-makers felt like their backs were against the wall. The World Trade Organization in recent years put Belize on notice that the Export Processing Zone (EPZ) law was in direct violation of WTO rules and for the country to get back in compliance it would have to eliminate portions of the regime, most notably the 12.5% tax relief provision available to exporters who procure local services, like electricity and Internet connections. (The European Union also played a part in pressuring Belize to change). Firms under the DPA rules must also face a higher income tax rate, approaching 3% for companies with income less than $3 million.
Already up to its ears in debt and struggling to avoid the crippling pain of WTO estrangement, the Prime Minister drove the creation of the DPA to satisfy the WTO. He and the WTO got what they were looking for – at the expense of many local companies. What was lost in the process was a significant amount of goodwill among knowledge-services exporters, whose chief complaint was that the government never really took the time to understand their business and the environments they operate in.
“I understand that the country needs to get in compliance with WTO. My major issue is the lack of transparency and involvement the government has had with a major industry that is employing 3,500 Belizeans today. I know it is a small number, but when you look at it in comparison to the population it is a huge portion of the jobs in Belize City,” a source told us earlier this year in our first reporting on the issue.
The idea of an industry advocacy group has been floated a couple of times in recent years in Belize. However, despite some organizational meetings, the concept never took root and by the time the DPA discussions surfaced, it looked like the industry was already late to the party.
Taxes are a headache everywhere of course, but they are particularly problematic in Belize. In a 2015 report, “Rekindling Economic Growth in Belize, Inter-American Development Bank economist Dougal Martin makes clear that balancing taxation with exemption relief must be addressed carefully:
The most significant exports outside of tourism—sugar, citrus, papaya, shrimp, and BPOs—rely on tax and trade exemptions. Successful exporters are underrepresented in the private sector. Along with access to finance, tax rates are rated as the biggest obstacle in the economy. Fifty-seven percent of all firms identify tax rates as a major constraint, placing it as the second most frequently identified factor as a major constraint to their business. The majority of respondents identified the tax rate as the one most important obstacle.
To be clear, there is nothing written in stone that says that when outsourcers establish associations that they get everything they want. In reality, BPOs who unite together often discover that they are given a sense of greater confidence in the markets where they operate. They feel less at risk of being blindsided. They trust that the right ‘message’ about BPOs is being communicated to local citizens. It starts with making the BPO industry accessible. Helping governmental and commercial bodies understand just how complex the BPO business is – from operations and talent management to client acquisition and technology innovation – is a good start.
Where many governments – both local and nationally – go wrong is making the false assumption that their “product” is simply superior and doesn’t need any incentivizing. This type of flawed thinking is fostered when governments fail to actually have conversations with outsourcers, and thus remain ignorant to the fact that there are always dozens of other territorial options in the Americas to locate outsourcing operations.
In the case of Belize, time will tell how much the new taxation landscape will impact future BPO investment – and whether industry stakeholders finally find the right opportunity to line up together.