PEZA to allow 70-30 hybrid work model

The Philippine Economic Zone Authority (PEZA) is issuing a memorandum circular (MC) allowing its registered IT-business process management (IT-BPM) enterprises to operate 70 percent onsite and 30 percent work from home (WFH).

Philippine Economic Zone Authority

PEZA Director General Charito B. Plaza said the planned PEZA MC will come out before March 31, which is end period of the 90-10 (WFH-onsite) work arrangement allowed for its registered business enterprises (RBEs) in consideration of the pandemic.

PEZA Director General Charito B. Plaza

According to Plaza, PEZA plans to issue an MC instead of filing an appeal to the Fiscal and Incentives Review Board’s (FIRB) decision that denied its petition for continued hybrid work arrangement after March 31.

Plaza explained that the MC would be integrating comments and undergo legal scrubbing with the Board of Investments, the lead government agency in the crafting of the Strategic Investments Priorities Plan (SIPP), a list of preferred economic activities that are entitled to tax and fiscal incentives under the CREATE Law.

“It’s an MC we’ll issue to our RBEs using the regular 70-30 ratio ending the 90-10 ratio at the start of the pandemic as our business assistance and reliefs,” said Plaza.

“No more appeal because we’re just going back to the regular ratio of 70-30.”

At present, PEZA RBEs, which are foreign-owned and export-oriented, are allowed to sell 30 percent of their production to the domestic market and 70 percent for export.

Under the PEZA rules, Plaza said, ITBPMs are allowed to engage in local sub contracting where they can outsource a portion of their activity to the domestic territory. This means they can conduct activity outside of the ecozone as long as the company has met the minimum 70 percent export sales/ services.

Based on her explanation, PEZA is just trying to apply the same 70-30 (export-domestic) sales ratio for its hybrid work arrangement proposal.

Plaza further said that the SIPP technical working group also agreed to include 50 percent WFH arrangement for ecozone locators in the SIPP, regardless if the project is foreign or Filipino-owned.

Aside from this 70-30 ratio on foreign-domestic sales rule in the PEZA rules, the agency is also invoking the Telecommuting Act as another basis to allow its ITBPM RBEs to continue working outside the premises of approved ecozones or IT Parks/Buildings.

The telecommuting law, Plaza said, provides for the work schemes utilizing computer technology.

Plaza further said there should be “no diminution of incentives” for its RBEs that will operate under the 70-30 hybrid work arrangements.

Earlier, however, Finance Secretary Carlos G. Dominguez III said IT-BPM firms in economic zones and are registered with investment promotion agencies (IPAs) are free to adopt work from home office arrangements, but they must give up their tax perks.

“No one is prohibiting them or impinging on their management prerogative to continue implementing their WFH setups. However, they must give up the tax incentives they currently enjoy because the law is clear on this,” said Dominguez.

Companies registered with an IPA such as the enjoy incentives such as an income tax holiday or a five percent special corporate income tax in lieu of all taxes, such as the value-added tax (VAT), income tax, and local business tax. As a condition for enjoying these incentives, they have to comply with Section 309 of the Tax Code.

The law states that “a qualified registered project or activity under an Investment Promotion Agency 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.”

Dominguez pointed out that it is also unfair to other companies outside ecozones that are paying regular taxes.