RHQ Head welcomes ‘grandfather’ clause in Senate’s Tax Reform Bill with reservations

The Senate version of the administration’s first tax reform package would be keeping a crucial tax perk enjoyed by a subsector of the business process outsourcing (BPO) industry, albeit it would not be extended to new job offers starting next year.

Shameem Quarashi, chair of the Philippine Association of Multinational Companies Regional Headquarters Inc. (Pamuri), criticized the move, saying it “ignores the long-term goal” of making the Philippines a destination of choice.

The Senate version of the Tax Reform for Acceleration and Inclusion (Train) or Senate Bill 1592, approved by a committee this week, still allowed existing managerial and technical jobs in regional operating headquarters and regional headquarters (ROHQs/RHQs) to enjoy a 15-percent preferential tax rate (PTR). This covered 5,000 elite jobs in the industry.

If the law is passed, however, similar positions that have yet to be filled up would no longer have the same incentive.

Under the current tax regime, the annual salaries of these highly sought-after jobs —which average more or less P1.5 million yearly—are subject to only a 15-percent tax rate. For comparison, those with the same pay grade but in a different industry get a 32-percent tax rate.

Yet, some view the Senate’s version is a compromise to the blanket policy passed by their counterparts at the House of Representatives back in May—House Bill 5636.

“It’s a welcome improvement over the House bill but still ignores the long-term goal of attracting ROHQs/RHQs to put up their operations in the Philippines,” Quarashi said.

ROHQs and RHQs are established by multinational companies to cater to affiliates, subsidiaries, or branches in the global market. These services include, for example, corporate finance advisory, research and development, and marketing control and sales promotion—all of which are considered high-value jobs that stand out in the local BPO industry known particularly for its voice-based services.

Over the years, some Fortune 500 companies—such as Unilever, Chevron and Procter & Gamble—have selected the Philippines for their ROHQ/RHQ operations. The tax perk, in particular, was a crucial factor in their decision to operate here, seeing it as part of savings in a capital-intensive industry.

The Senate’s version of removing the PTR for future jobs goes against the goal of the subsector, which Quarashi said “is to continue to entice investments in the Philippines, beyond just protecting present locators.”

“We are encouraged that grandfathering was offered as a compromise but in the new bill—only [present] employees are protected—not future ones. The best way to grandfather is to protect the company, not just present employees,” he said.

Grandfathering exempts certain persons from restrictive provisions in a new law.