The Philippines Extends Tax Incentives to Attract Call Centers

The Philippines' recent policy changes, particularly the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and its subsequent amendments, have significantly impacted the Business Process Outsourcing (BPO) industry. These reforms aim to enhance the country’s appeal to foreign direct investment by offering more flexible work arrangements and maintaining tax incentives. This article explores these policy changes, their implications for the BPO sector, and the importance of evaluating such factors during the site selection process, especially when considering the hub-and-spoke model for operations. 

Policy changes and their impact on the BPO industry

In November 2024, President Ferdinand Marcos Jr. signed into law amendments to the CREATE Act, aiming to attract more foreign investments by lowering corporate income tax rates and offering more fiscal incentives to qualified companies. The law reduces the income tax rate for registered business enterprises (RBEs) from 25% to 20% and allows up to 50% of employees in RBEs to work from home while retaining their tax incentives. 

Before these amendments, BPO companies faced challenges maintaining tax incentives when implementing remote work arrangements. The new provisions address these concerns by allowing BPO firms to adopt flexible work models without jeopardizing their fiscal perks.  

Importance of evaluating policy changes during site selection

When selecting a site for BPO operations, it’s crucial to consider the regulatory environment and policy incentives of the host country. The Philippines’ recent policy changes offer several benefits:

• Enhanced Flexibility: Allowing up to 50% of the workforce to work remotely enables BPO companies to implement hybrid work models, which can lead to increased employee satisfaction and access to a broader talent pool.
• Cost Efficiency: Reduced corporate income tax rates and the retention of tax incentives for remote work can lower operational costs, making the Philippines a more attractive destination for BPO investments. 
• Simplified Processes: The ability for BPOs to register with any of the country’s investment promotion agencies simplifies the setup process, reducing bureaucratic hurdles and expediting operations.

By thoroughly evaluating these factors, companies can make informed decisions that align with their operational strategies and financial goals.

Integration with the hub-and-spoke model

The hub-and-spoke model, where a central ‘hub’ supports various ‘spokes' or satellite operations, is particularly effective in the BPO industry. This model allows for centralized training and resources at the hub, while spokes operate in different locations, including remote setups. The Philippines’ policy changes complement this model by: 

• Supporting Training and Development: With tax incentives retained for remote work, employees can undergo training and nesting at the central hub and then transition to remote roles, ensuring consistency in service quality.
• Facilitating Scalability: The flexibility to have up to 50% of the workforce working remotely allows BPOs to scale operations efficiently without the need for extensive physical infrastructure at each spoke location.
• Enhancing Disaster Resilience: A distributed workforce across various spokes, including remote setups, ensures business continuity in case of localized disruptions, aligning with global best practices for operational resilience.
  Conclusion

The Philippines’ proactive approach to reforming policies to accommodate modern work arrangements has strengthened its position as a competitive destination for BPO operations. For companies considering expansion or establishment of BPO services, understanding and leveraging these policy changes is crucial. Incorporating the hub-and-spoke model, supported by favorable tax incentives and flexible work arrangements, can lead to optimized operations, cost savings, and a satisfied workforce. As the global business landscape evolves, aligning site selection strategies with such progressive policies will be key to sustained success in the BPO industry.