Published: March 28, 2022 | Comments
An innocent-sounding decision to help local businesses in the Philippines may risk upending the BPO industry here.
During the height of the pandemic, the Fiscal Incentives Review Board (FIRB) of the Philippines announced that business process outsourcing (BPO) firms could conduct up to 90% of their work remotely until March 31, 2022. This allowed BPO companies – the country's largest private-sector employer – to send most of their agents home while still taking advantage of tax breaks offered by the Philippine Economic Zone Authority (PEZA).
We've learned from Manila to Main Street how work can be successfully conducted in a work-from-home (WFH) environment. The pandemic changed the way the industry viewed remote work. Productivity was high and clients were happy with the way their customers were served.
This policy is being reversed at the end of the month in the hope of restoring pre-pandemic economic activity. Companies who rely on the Philippines to support their contact center operations may feel the pinch. PEZA has lobbied on behalf of BPOs but has come up short so far. The agency has been pushing to extend the tax breaks until September 2022, but the country's Minister of Finance isn't budging.
That means that tens of thousands of agents likely will be forced back into their offices. While some agents have been protesting the decision, BPOs who benefit from PEZA tax breaks have a tough decision to make – do they insist their employees come to the office so they can benefit from tax incentives, or do they let their agents continue working from home - and lose the benefits?
The government wants agents back in the office, particularly in large cities like Manila so they can support local businesses. Restaurants and shops rely on the spending power of the BPO agents when they're in the office. And if BPOs demand their agents come back to the office, they can reap the tax breaks.
But they're risking pushback from their agents. Agents may vote with their feet and refuse to come back into the office. Attrition and schedule adherence will spike, which could lead to higher recruiting and training costs. And for the agents who do decide to come back into the office, they won't be happy. Therefore, their performance may suffer and productivity will stall.
The alternative for BPOs isn't much better. If they allow their agents to stay at home, they lose the tax breaks they receive through PEZA. For some equipment, BPOs realize a 65% tax break. For laptop computers and other electronic equipment that went home with agents, BPO providers received a 35% tax break. BPO providers may be forced to pass along the increased cost of doing business to clients.
The Philippine government is feeling the pressure from both ends. Small and medium-sized businesses are lobbying for the agents to return to the office and seeking prepandemic normalcy. When agents are working in the office, they eat at local restaurants, shop at local stores, and enjoy happy hour cocktails at local pubs. However, BPO providers and their advocates are hoping to extend WFH capabilities and tax benefits.
Meanwhile, these issues are percolating while a general election is underway to elect a new president on May 9th. No resolution is expected soon. Election cycles are not ideal environments for significant policy shifts.
Eventually, there will be a resolution, but not before BPO providers and their clients feel some economic pain. Any company that relies on the Philippine market for their contact center support should have a redundancy plan in place. Higher costs are inevitable in the current environment.
It appears to be a no-win situation for some buy-side clients. They face higher costs if agents are forced to go back into the office or if they continue a WFH model. There are options to avoid a dire no-win situation. A business continuation or redundancy plan could include an alternate provider who isn't facing increased costs in the Philippines or a different nearshore market.
Meanwhile, the FIRB is considering a hybrid working scheme where 40 to 60 percent of the BPO industry would work from home. This will keep BPO providers in the country and keep this sector alive. BPO firms abroad, including those in India, the Philippines' biggest competitor, will likely allow employees to continue to work from home even after the pandemic, according to the Everest Group, an industry research agency. India is already adjusting its policies and tax breaks to support a remote work setup. The Philippines, says Everest, should do the same or risk losing getting left behind.
A host of providers are staying silent on the issue and not letting their clients in on the looming deadline at the end of the month. This risks the integrity of the client relationship and the reputation of not only the provider but the entire industry. Providers have to be candid about pending legislative or regulatory changes that will impact their clients and their clients' customers – for good and bad. Our industry – and our day-to-day business - is built on these relationships.