IBPAP says WFH authority legal

Published May 20, 2022, 5:56 PM

by Bernie Cahiles-Magkilat

The IT and Business Process Association of the Philippines (IBPAP) stands by the validity of the Letter of Authority (LOAs) issued by the Philippine Economic Zone Authority (PEZA) allowing its member companies to operate via a hybrid work arrangement.

“The support that the PEZA extended by allowing 30 percent WFH arrangement through a Letter of Authority (LOA) is a legal and fair measure that IT-BPM RBEs are grateful for,” said IBPAP President and CEO Jack Madrid in a statement.

Madrid said the LOA provides necessary relief to address the cost and competitiveness pressures that the IT-BPM industry has been under since the pandemic began.

Madrid explained that the expiration of the 90 percent work-from-home (WFH) arrangement last March 30 has posed great challenges for many registered business enterprises (RBEs) of the IT-BPM industry. These include the complex process on the logistics of mobilizing employees and equipment to onsite operations while managing employee satisfaction and mitigating widespread attrition.

Moreover, he said, the LOA gives affected organizations more “flexibility and runway time to transition and set up their offices for returning employees as they strengthen their immediate-term strategies amid continuing global shifts.”

In the last two years, he said, the IT-BPM industry successfully navigated the pandemic, recording growth in revenues and jobs through the support of PEZA, FIRB, and other government partners.

“We continue to count on their support to uphold the validity of the LOAs in order to achieve our jobs and revenue targets,” the statement concluded.

IBPAP issued the statement after the Department of Finance reiterated its position that PEZA-registered firms have to return to their approved location in an economic zone or lose their tax incentives.

Already, the Bureau of Internal Revenue (BIR) is monitoring the compliance of outsourcing companies in economic zones with the onsite work policy of the Fiscal Incentives Review Board (FIRB), the DOF said.

A BIR task force has been created to ensure that RBEs in the IT-BPM sector currently enjoying tax incentives are complying with the requirement under the law, the DOF said.

According to BIR Deputy Commissioner Arnel Guballa, the bureau has issued mission orders allowing the conduct of ocular inspections of the place of business of RBEs, to determine if they are complying with the conditions for the grant of incentives.

ITBPM firms were temporarily allowed by the FIRB to resort to “work-from-home” arrangements without losing incentives granted to them as ecozone locators so they could continue doing business offsite at the height of the pandemic. The WFH arrangements for RBEs were allowed up to March 31, 2022.

Under Section 309 of the National Internal Revenue Code (NIRC) of 1997, as amended, RBEs and/or registered activities must be conducted within the geographical boundaries of the ecozone or freeport where they are located to be entitled to fiscal incentives.

Finance Secretary Carlos G. Dominguez III, who is also FIRB chairman, earlier clarified that RBEs in the IT-BPM sector are free to adopt WFH arrangements beyond the March 31 deadline, noting it is a “corporate management discretion.” “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,” Dominguez said. Finance Assistant Secretary and FIRB Secretariat Head Juvy Danofrata has pointed out that as separate customs territories, economic zones and freeports were established to promote export activities and allow the free flow of goods and services (including IT-BPM services) within the boundaries of said zones or freeports. Towards this end, she said tax incentives are granted to priority projects or activities located in these zones. “The government has exercised significant caution in balancing the economy’s needs and the health requirements to address concerns the pandemic caused. However, we believe that the current situation already allows us to direct our policies towards fully reopening the economy,” said Danofrata.