IBPAP: Fiscal incentives are a 'tiebreaker' in BPO’s investment decisions

The IT and Business Process Association of the Philippines (IBPAP) on Wednesday said that tax perks are still among the main reasons why business process outsourcing (BPO) companies invest in the country, despite some firms opting to forego some of the fiscal incentives they enjoy in favor of continuing remote work arrangements for their employees.

“The decision of IT-BPM (IT-Business Process Management) RBEs (registered business enterprises) 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 WFH (work from home)/hybrid work arrangements,” IBPAP said in a statement.

Last week, the Department of Finance (DOF) said BPO firm Concentrix decided to give up its tax incentives to carry on with its flexible work arrangements after the government ordered companies operating in special economic zones to require 90% of their workers to return on-site starting April 1 or else they will lose the tax perks they enjoy.

Firms in economic zones enjoy fiscal incentives such as income tax holidays and a 5% tax on gross income earned.

“While there may be investors such as Concentrix who were reported to have given up tax incentives to continue WFH/hybrid work arrangements, we believe the decision was founded 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 as well as its belief that flexible work models will ultimately result in greater productivity and scale for its global customer base and long-term business viability,” IBPAP said.

The group added that BPO firms still “value fiscal incentives, which often is the tiebreaker in their investment considerations.”

“Continued profitability is key to retain their investments, expand in the country, create more jobs for Filipinos, and contribute to urban and countryside economic development including the generation of significant export revenue,” it said.

IBPAP earlier reported that revenues posted by the IT-BPO sector stood at $29.49 billion in 2021, up 10.6% year-on-year amid the implementation of the WFH setup.

This suggests that the tax benefits received by BPO firms are not that necessary as they only increase their profitability, according to the DOF.

But the IBPAP said that “consistency and clarity in the implementation of government regulations are critical in defending our country-level competitiveness.”

“Terms and conditions of investment registrations must be honored and upheld, including the grant of fiscal and non-fiscal incentives,” the group said, adding that “ease and predictability of doing business is of paramount importance.”

“Their decision to locate in the Philippines were made based on laws, regulations, and policies they vetted versus competing locations,” IBPAP added.

IBPAP reiterated its appeal to the Fiscal Incentives Review Board (FIRB) to reconsider its decision and rule in favor of the IT-BPM industry by allowing its players the privilege of fully implementing the Philippine Economic Zone Authority’s (PEZA) Letters of Authority (LOA) on WFH.

PEZA earlier said its registered locators can apply for a 70-30 hybrid work arrangement that allows some of their employees to work from home.

The 70-30 ratio allows 70% of employees to work on-site and 30% to work remotely.

IBPAP said PEZA’s policy has a legal basis which has enabled companies to accommodate the strong preferences of their employees and execute a smooth, phased return to on-site operations in the immediate term before a permanent WFH/hybrid work policy is established.

“The 100% return to office directive of the FIRB to employees of the IT-BPM industry poses a threat to the industry’s growth and remains a big challenge to industry players for reasons that have been explained in IBPAP’s letters of appeal,” it said.

“Moreover, a critical risk that industry players face is increased employee attrition if the WFH/hybrid work setup is not available." —VBL, GMA News