SAYING it threatens the IT and Business Process Management (IT-BPM) industry’s growth, the IT Business Process Association of the Philippines (IBPAP) urged the Fiscal Incentives Review Board (FIRB) to reconsider its decision suspending income tax incentives for every month of a registered business enterprise (RBE)’s non-compliance with the 100-percent return-to-office directive.
In a statement on Wednesday, IBPAP, the flagship organization of the IT-BPM industry in the Philippines, stressed that “even at the risk of being meted with penalties imposed by the FIRB on companies who are unable to comply with the RTO, some of these registered business enterprises will choose to allow employees to continue working from home.”
IBPAP noted that the decision of IT-BPM RBEs to forego their income tax perks is a “difficult interim measure” to address the needs of their employees and meet the demand of clients who prefer work-from-home (WFH) or hybrid work arrangements.
While there may be investors such as Concentrix who were reported to have given up tax incentives altogether to continue WFH/hybrid work arrangements, IBPAP believes that the decision was built on the company’s commitment to prioritizing the needs of its 100,000+ Filipino employees who have expressed an overwhelming preference for a hybrid work arrangement. In addition, the company also stood its ground that flexible work models will ultimately result in greater productivity and scale for its global customer base and long-term business viability.
In March, the Bureau of Internal Revenue (BIR) warned that income tax incentives granted to RBEs in the IT-BPM sector will be suspended if they violate the work-from-home threshold set by the Fiscal Incentives Review Board (FIRB).
BIR Commissioner Caesar R. Dulay, reading the Revenue Memorandum Circular 23-2022, said in March, “Hence, the RBE shall pay the income tax using the regular rate of either 25 percent or 20 percent based on the taxable net income corresponding to the months the RBE has violation.”
The FIRB oversees the administration and grant of tax incentives by the Investment Promotion Agencies (IPAs).
IBPAP stands by its position on the WFH/hybrid work and the legal basis of the letters of authority (LOAs) granted by Philippine Economic Zone Authority (PEZA) to allow 30 percent WFH arrangement until September 12 of this year.
“This has enabled companies to accommodate the strong preferences of its employees and execute a smooth, phased return to on-site operations in the immediate term before a permanent WFH/hybrid work policy is established,” said IBPAP President Jack Madrid.
The IT-BPM industry continues to be a major economic pillar of the Philippines with its 1.44 million total employee headcount at the end of 2021, delivering $29.49 billion in service export revenue.
Meanwhile, PEZA has denied claims by the FIRB in its June 15 article titled, “FIRB finds PEZA clueless on actual investments made by locators who enjoy tax incentives,” noting that PEZA is not monitoring its data on actual investments by its RBEs.
“PEZA is confident that benefits of incentives to investments outweigh the foregone taxes; hence, we find the statement by FIRB practically erroneous, misleading and intends to embarrass PEZA as an Investment Promotion Agency [IPA],” said PEZA Director General Charito Plaza. PEZA pointed out that it submits its monthly reports on Approved Foreign Investments to the Office of the Secretary-Department of Trade and Industry (DTI) on a quarterly basis, to the Philippine Statistics Authority (PSA).
“This is the accepted practice for all IPAs including PEZA, to monitor the committed investments of our enterprises,” read the statement PEZA released on Wednesday.
PEZA also emphasized that the reports required to be submitted by their RBEs under RA No. 10708 or the Tax Incentives Management and Transparency Act of 2015 (TIMTA) does not include a column for actual investments, but is limited only to the annual tax incentives report on income-based incentives and value-added tax (VAT), excise tax and duty-based incentives.
Further, the requirement to monitor the approved and actual amount of investments of the RBEs is a report imposed only under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act under Section 205 with the filing of annual benefits reports.
“Most of our RBEs submitted already these reports to the FIRB on June 15 while PEZA has until July 15,2022 within which to submit our reports to the FIRB,” read the PEZA statement. PEZA emphasized that for the FIRB to state that PEZA does not monitor the inflow of actual investments is “irresponsible and smacks of bad faith.”
Image credits: The Contact Center Asociation of the Philippines