BPO firms and call centers operating in special economic zones in the Philippines have long enjoyed hefty tax-breaks, but that tax holiday could be coming to an end.
The Philippine Economic Zone Authority (PEZA) currently provides a 12% tax exemption to call centers in the Philippines that employ over 1 million agents, creating an immediate 12% cost reduction on operating in the the country.
Under the proposed Tax Reform for Acceleration and Inclusion (TRAIN) bill or House Bill 5636, this cost benefit will be removed from PEZA, as the government plans to apply a 12% VAT on revenue from service exporters.
“During the site selection process in the Philippines, a building’s PEZA certification is one of the first things you look for when trying to find a call center site,” writes King White, founder of Site Selection Group, in a blog post. “Changes to PEZA will decrease the value proposition of the Philippines.”
The call center and business process outsourcing (BPO) industry is estimated to generate US$24 billion annually in the Philippines. The government intends to raise over US$2.8 billion in tax revenue from service exporters with this tax amendment.
However, the government seems to be unaware of the potential impact this will have on the industry.
“Many companies may decide to not locate in the Philippines or relocate if they are already operating there,” White wrote. “They may choose other nearshore and offshore locations such as Latin America, the Caribbean, India, South Africa, or Eastern Europe.”
Hiring in the BPO sector has already decreased in the Philippines. Online hiring for the IT, telecommunications, and business process outsourcing (BPO) industry had decreased by 9% in the year ending June 2017, according to online job board Monster.com.
Late last year, its President Rodrigo Duterte created jitters among foreign outsourcing firms, such as Teleperformance, Qualfon, and Convergys, saying that the Philippines would cut ties with the United States in exchange for a cozy relationship with China.