Let’s Talk Tax
By Grace L. Turqueza
The pressures companies have had to confront during the pandemic highlighted the importance of keeping the workforce happy and productive. When employees are trusted and engaged, yields rise. Conversely, when people feel unmotivated or undervalued, the company suffers. Studies show that employees deeply invested in their work commit fewer mistakes, do better, and are more eager to embrace change.
Keeping employees happy is hard work in light of the changes imposed on the workplace by COVID-19. Studies have found that up to 82% of respondents prefer working from home to onsite work, which managers must come to grips with as employees begin to trickle back to the office after two years of remote work.
On March 10, 2022, the Fiscal Incentives Review Board (FIRB) issued Memorandum Circular 2022- 018, denying a request by the Philippine Economic Zone Authority (PEZA) to extend the government’s authorization of remote work for Information Technology-Business Process Management (IT-BPM) companies. Incentives enjoyed by IT-BPM companies located in economic zones are conditional on a proportion of the workforce carrying out their duties onsite. These rules were relaxed for safety reasons during the pandemic, when companies were allowed to have up to 90% of staff on remote-work arrangements. However, the offsite-work amnesty will not be extended beyond March 31.
Economic managers and business leaders believe that more onsite work will help revive the economy by boosting the prospects of businesses that depend on foot traffic from office workers, though some IT-BPM workers have also cited the need to shield them from high fuel prices, which they will have to absorb if they must commute to work.
Failure to observe the new onsite work rules puts companies at risk of losing their tax perks, a consideration which must be balanced against the need to retain staff who have grown accustomed to working from home.
PEZA-registered IT-BPM companies, also known as the business process outsourcing (BPO) industry, are required to revert to onsite work at the start of April. No further work-from-home (WFH) arrangements are authorized by PEZA, be they hybrid, staggered, or phased return-to-office); companies that defy the return-to-work rules run the risk of losing their tax breaks.
Moreover, no WFH arrangement in whatever form (hybrid, staggered, temporary or phased-in RTO) shall be authorized by PEZA pursuant to Section 30 of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
Section 309 of the CREATE Law regulates registered activities; it stipulates that a qualified project or activity registered with an Investment Promotion Agency (IPA) administering an economic zone or Freeport must be exclusively conducted or operated within the geographical boundaries of the zone or Freeport.
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 is not entitled to tax incentives, unless the project or activity is registered with another IPA.
High employee turnover is costly for any business. Sometimes, when employees choose to resign, their reasons for quitting stem from internal factors at work. Therefore, it is important for management to consider employee welfare in making any decision. After all, people are a company’s greatest asset. We can only hope that the government and PEZA-registered entities can untangle the WFH dilemma in a manner that is beneficial to both parties.
Legislators and the IT-BPM industry must work hand-in-hand to give due weight to each other’s views on how to bring about a recovery. The various measures required to revive the economy are not always obvious, but they certainly are connected.
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.
Grace L. Turqueza is an associate from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.