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BPOs unlikely to take up gov’t dare to forego incentives

THE Information Technology and Business Process Association of the Philippines (IBPAP) said its members are not likely to sacrifice their tax incentives, which the government has warned they must surrender if they flout tax rules and allow employees to continue working from home.

“I highly doubt that investors in our industry and in other industries for that matter will forgo tax incentives… It is a very important factor for continued investment in the country,” IBPAP President Jack Madrid said in a television interview on Tuesday.

The business process outsourcing (BPO) industry typically performs its work in economic zones and enjoy tax incentives. One of the conditions for availing of such incentives is to perform most of the work within the economic zones.

“I think any investor especially in our very large and important industry consider an array of factors before investing in our country. I would say fiscal incentives and tax incentives are critical to continue growing our industry,” he added.

The Finance department said in a recent statement that tax incentives are “not that important” to foreign investors doing business in the Philippines, after BPO company Concentrix decided to continue with its hybrid work arrangements, in the process giving up its tax perks.

“This goes to show that tax perks are not that important to investors doing business in the Philippines. This validates the Department of Finance’s (DoF) policy thrust to avoid the grant of unnecessary tax incentives as this is apparently not the main consideration for them to do business in the country, especially for the BPO firms that have been enjoying the exemptions and incentives for a long time,” Finance Assistant Secretary Juvy C. Danofrata said.  

According to Mr. Madrid, the decision of Concentrix stemmed from the company’s decision to heed its employees’ wishes, after the government ordered economic zone locators to resume on-site work.

“In the case of Concentrix, which is a very active member of the association, this is I believe, a very temporary measure, a painful decision for them to make, given that viable commercial activity and profitability need both fiscal and non-fiscal incentives,” Mr. Madrid said.

“… I think knowing the investment appetite of many of our members, including Concentrix, I believe that fiscal incentives will continue to play an important role to grow investment and to retain investors,” he added.  

Mr. Madrid said the association is contented with the 70% on-site and 30% work-from-home (WFH) arrangement allowed by the Philippine Economic Zone Authority (PEZA) for registered business enterprises (RBEs) that have applied for letters of authority (LoAs) and cannot immediately return to on-site work.

He added that IBPAP is in dialogue with the current and incoming administrations on the importance of flexibility in the workplace.

“We don’t know what that final number (ratio) will be, but we are quite comfortable with the current 70-30 ratio that the PEZA has allowed us to those who have applied for LOAs,” Mr. Madrid said.

“It is extremely challenging, after adopting WFH for almost two years, to suddenly fully return to on-site work. We see (these challenges) beyond our industry. I think we all have seen the benefits of a hybrid work set-up that we are all still trying to figure out what that optimal balance is,” he added.  

WFH was resorted to as a temporary measure during the pandemic, with the Fiscal Incentives Review Board (FIRB) authorizing ecozone locators to adopt alternative working arrangements for safety reasons. This authorization was withdrawn as the coronavirus case count declined.

In April, PEZA announced that it allowed RBEs to maintain a 70-30 on-site work ratio while still enjoying tax incentives. This arrangement is valid until Sept. 12, or the end of the declared national state of calamity, as long as RBEs apply for LoAs.

The Corporate Recovery and Tax Incentives for Enterprises (CREATE) law allows companies registered with investment promotion agencies like PEZA to avail of perks such as an option to pay a 5% special corporate income tax in place of other taxes, an income tax holiday, and enhanced deductions. 

However, these companies need to comply with Section 309 of the Tax Code, which requires that business be conducted “within the geographical boundaries of the zone or freeport” in which the project or activity is registered. — Revin Mikhael D. Ochave