DOF defends removal of preferential income tax on regional HQ staff

MANILA, Philippines - The removal of the 15-percent preferential income tax rate of individuals employed in the regional operating headquarters (ROHQ) of multinational companies under the proposed tax reform bill is aimed to ensure there is fairness in the tax system, the Department of Finance (DOF) said yesterday.

During a forum organized by Colliers International, Finance Undersecretary Antonette Tionko said the proposal under House Bill 5636 would simplify the tax system, ensuring that those earning the same amount, regardless if they work in ROHQs or ordinary companies, would be levied the same tax rates.

“Those highly technical and managerial employees of ROHQs only pay a tax of 15 percent. That is, versus employees with the same skills and abilities working in other companies that are paying the regular rate,” Tionko said.

“What we want to do is to have a simplification of the tax system so that workers pay same rates as they earn the same amount,” Tionko said.

She said the proposal to remove the preferential tax rate would only affect the employees of the ROHQs, but not the companies themselves.

“Now, one might argue that people working in ROHQs are highly technical, but then you also have a lot of those people working in ordinary BPOs (business process outsourcing). In fact, I know for a fact that 15 percent rate is being used by ROHQs as recruitment tool,” she said.

She added the increase in taxes for ROHQ employees will be cushioned by the general provision of the tax reform bill lowering the income tax rates.

“One more thing, we will be lowering income tax rates. We studied the average salary of employees in ROHQs right now...and it’s not much different, so in that sense, what we want to achieve is simplification and more fairness,” she said.