Let's Talk Tax

PEZA: Raise the white flag

Grace L. Turqueza
By:
Grace L. Turqueza
Contents

Considering today’s economic situation, the primordial importance of having happy and productive employees is gaining popularity. When employees are trusted and involved in the company, yields are higher. Conversely, when people feel unmotivated or undervalued, the company suffers. On top of that, studies show that employees highly engaged in their work commit less mistakes, do better, and are more sympathetic of changes and are eager to embrace such changes.

But keeping employees happy in a particular company or work setup is hard work. With the COVID-19 pandemic introducing extraordinary changes in work life, a study has shown that 82 percent of respondents admitted that they prefer working from home than going back to the office. The remote work trend was introduced to employees due to the pandemic; however, after two years of remote working, employees are now being asked to return to their offices.

On March 10, 2022, the Fiscal Incentives Review Board (FIRB) issued Memorandum Circular 2022- 018, denying the proposal of the Philippine Economic Zone Authority (PEZA) to implement a temporary measure under Rule 23 of the Implementing Rules and Regulations (IRR) of Republic Act (R.A) No. 11534 otherwise known as the CREATE Law. This would mark the end of the leniency that the government extended to IT-BPM companies operating in the country’s ecozones, which grant tax incentives to locators. At the onset of the pandemic in 2020, companies were sanctioned to implement remote work for 90% of their employees without losing their tax privileges to keep down the disarray caused by government-imposed lockdowns.

The move to ask employees to return to the office comes as an economic strategy of the Philippines to reopen its economy gradually and safely, which was battered by prolonged lockdowns to combat the coronavirus.

But the order may pose problems for some outsourcing companies. Failure to observe the new government directive puts them at threat of losing their tax spur, which are contingent on operating on-site. Inversely, pressuring staff members to go back to office work could result in resignations, a problem for a sector already grappling with high turnover rates.

Another dilemma for employees is the current record-high gas prices. Fuel costs have jumped more than 20% in the past few weeks alone which means costlier commute as they return to the workplace amid a sharp decline in COVID-19 cases.

Tax holidays and other perks have been contributory to the industry's success but obtaining them requires that companies operate in the "ecozones" where they are registered, based on a 1995 law that provides for these incentives.

IN-SITU

IT- business process outsourcing (BPO) firms registered with the PEZA are mandated to return to their onsite offices starting April 01, 2022. It has been provided that on-site means that the employees of the enterprises are physically present inside the IT Centers/Buildings where the IT/BPO enterprises operate. The non-compliance with the return-to-work order will result in revocation or suspension of the incentives granted to PEZA-registered companies of business closure of registered business enterprises.

Moreover, no WFH arrangement in whatever form (hybrid, staggered, temporary or by phase RTO) shall be authorized by PEZA pursuant to Sec. 30 of the CREATE Law.

OFF-LIMITS

Section 309 of the Create Law provides for a prohibition on registered activities. It is provided that a qualified registered project or activity under an Investment Promotion Agency (IPA) administering an economic zone or Freeport shall be exclusively conducted or operated within the geographical boundaries of the zone or Freeport being administered by the IPA in which the project or activity is registered.

SLACK

A registered business, however, may conduct or operate more than one qualified registered project or activity within the same zone or Freeport under the same IPA. However, any project or activity conducted or performed outside the geographical boundaries of the zone or Freeport shall not be entitled to the tax incentives unless the said project or activity is conducted or operated under another Investment Promotion Agency.

WHITE FLAG

High employee turnover is a costly issue for any business. Sometimes, when employees choose to resign from their jobs, their reasons for quitting stem from internal factors at work. Therefore, it is important for the management of any company to consider the welfare of their employees. After all, people are a company’s greatest asset. Due to recent developments, we can only hope that at the end of the day, the government and PEZA-registered entities can come up with a solution that will be beneficial to both parties.

As a final analysis, the country's legislators and the IT-BPM industry must work hand-in-hand to support each other's respective drive towards growth, which are not always apparent but are relatively connected to each other.

Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

As published in BusinessWorld, dated 29 March 2022

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