THE COUNTRY’S burgeoning outsourcing industry has nothing to worry about despite US President Barack H. Obama’s repeat of a vow to end "tax breaks" on American firms shipping jobs offshore — there’s no such incentive and tweaking tax policy won’t stop multinationals from going overseas.
Courtesy: http://www.bworldonline.com/
Mr. Obama is following through a populist campaign promise to force American companies to keep jobs in the US, saying in his first presidential address before the joint session of US Congress: "We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."
But experts say this is all part of old Washington rhetoric as there is really no direct tax incentive awarded to US companies who transfer jobs to other countries. What the US tax code has is a decades-old provision that allows American companies to defer income tax payments on offshore profits until they are repatriated back home, and Mr. Obama wants to eliminate this.
John D. Forbes, chairman of the legislative committee of the American Chamber of Commerce in the Philippines, pointed out that outsourcing firms are all subject to the host countries’ tax laws.
The head of accounting firm Isla Lipana & Co., Tomasa H. Lipana, echoed this, saying the government of the parent company only taxes profits earned in foreign countries if they remit profits as dividends to the parent company.
Mr. Forbes said: "Obama is more concerned in raising the competitiveness of the Americans in the long term than initiating protectionist trends."
"Though there may be members of his party that have protectionist tendencies, but he is still the president and he is fine."
The Philippine outsourcing industry believes changing American tax policy won’t take away from the advantages of outsourcing, which has allowed multinationals to save money as a result of cheaper labor, and be close to their markets.
In any case, the US has long been losing jobs to other countries even before the crisis, particularly in manufacturing where it is no longer competitive.
"It’s not really surprising since it has been part of the platform of Obama ever since," said Oscar R. Sañez, head of the Business Processing Association of the Philippines (BPAP).
"I don’t think we will really be affected because we are doing better in terms of cost advantage to other outsourcing countries like Canada and Ireland."
Dina R. Salonga, Philippine Software Industry Association director said outsourcing growth would be difficult to stem.
"Even if Obama’s plan materializes, it will still be a matter of economics, like [opening in locations] where companies can save more," she said.
"There are many considerations for this business to just stop, not just tax breaks."
Frank Holz, head of the group Outsource2Philippines, likewise said translating Mr. Obama’s statements into legislation would be hard.
"How would that translate into official policy or legislation is a big question," Mr. Holz said.
"But to the extent that he thinks he could limit companies in lowering costs through outsourcing is wrong. It is ill-advised. You can’t force companies to do things that are not in their best economic interests. Well maybe you can as president but it’s not a good idea."
American companies account for 82% of outsourcing operations in the Philippines, according to the BPAP.
Despite the global slowdown, the $6-billion local outsourcing sector is expecting growth of 30-40% this year, and an additional 110,000 new jobs to the existing 400,000.
"We are not bothered by this," Mr. Sañez said.
"[Mr. Obama] probably will continue to press on this platform but I think companies will still continue outsourcing as they are all under pressure to restructure their companies by reducing costs because of the crisis," the BPAP chief added.
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