As more IT-business process management firms (ITBPM) prefer the hybrid work business model, the IT Business Process Association of the Philippines (IBPAP) has strongly urged government to allow easier transfer of their registration from the Philippine Economic Zone Authority (PEZA) to another investment promotion agency (IPA), particularly the Board of Investments (BOI), that ensures continued implementation of hybrid work arrangement without losing their tax incentives.
In a statement, IBPAP President & CEO Jack Madrid said this can be done via legislation to ensure minimal disruptions to their business operations.
“The best we can do for them in the interim is clear and consistent legislation that will ensure minimal disruptions to their business operations. This includes giving them autonomy on whether to keep their projects with PEZA or to transfer their registration with the Board of Investments (BOI),” said Madrid.
IBPAP believes that the long-term implementation of work from home (WFH) or hybrid work can be better addressed through the continued study and eventual amendment of Section 309 of CREATE or possibly the revision of the applicable portions of its Implementing Rules and Regulations (IRR). “It will be an important undertaking that IBPAP and our partners in the government will jointly and collaboratively work on for the global competitiveness of the IT-BPM industry of the Philippines,” IBPAP said.
At present, PEZA grants Letter of Authority allowing their registered IT-BPMs to operate 70 percent onsite and 30 percent WFH after the 90-10 hybrid work arrangement expired in March this year. But there has been no clear ruling if they are not violating their PEZA registration contracts, which requires them to operate in designated economic zones or IT buildings, centers and parks.
The Department of Finance even maintained that ITBPM firms that conduct work outside of their approved economic zone (IT Buildings/Parks/Centers) location are going to lose their tax incentives.
One way to avoid losing the tax incentives is through a transfer of registration with the BOI, which does not require firms to locate in an economic zone or IT park. Thus, affected ITBPM firms are rearing to transfer registration with the BOI. IBPAP said that transferring registration from one IPA to another is an important, complex decision made by companies based on their business goals, priorities, and investment criteria.
However, the transfer of registration from one IPA to another is not easy. IBPAP noted that while incentives have been made uniform across the different IPAs through the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, the policies that govern the administration and supervision of registered enterprises among IPAs are not uniform and transfers of registration from one IPA to another may not be as easy.
If mass transfer of registration from one IPA to another is mandated, IBPAP said that registered business enterprises (RBEs) will be subjected to an arduous task that not everybody may be willing to take for the time being and under the present circumstances. “This appears contrary to the ease of doing business principles that the government has been trying so hard to establish,” Madrid pointed out.
The group also noted that dialogues between the industry and government centered around hybrid work models also call for improving the ease of doing business in the country in order to attract more investors and locators.
Meantime, PEZA Director General Charito B. Plaza clarified that the issue of WFH is not enough basis for PEZA-ITBPM registered business enterprises to transfer to another IPA or to the BOI.
If indeed it is a consideration, Plaza reiterated that PEZA was the first IPA to allow WFH since 2017. This PEZA policy was further enhanced the following year with the passage of the Telecommuting Law allowing WFH, other flexi-time, and hybrid work schemes [especially] in the time of the pandemic, she said.
As such, the PEZA chief stressed, “The WFH must not be used as a basis for transfer.” She added that “having [and allowing] WFH and hybrid work set-ups are already being observed in India and other digitally-advanced countries.”
Further, with the recent issuance of a Memorandum Circular by the Philippine Civil Service Commission (CSC) for government agencies to adopt their WFH or flexi-time work arrangement, Plaza lamented, “Why must our government be strict to our investors and locators seeking for a hybrid work scheme whereas we [in the government] are now allowed by CSC to apply as such? Why do our partner stakeholders and industries have to give up incentives we have been granting them for two decades just so they can resume in their WFH or hybrid set-up?”
For one, she said, the IT-BPO sector that created 1.4 million jobs and increased in revenues despite the WFH during the pandemic. “They are one of the major industry players that protected and kept the jobs and livelihood of our people and have kept the economy afloat while the domestic enterprises were locked down,” she said.
The IT-BPM industry recorded revenues of $29.49 billion in 2021, a 10.6 percent growth from $26.7 billion 2020.
The industry also added 120,000 full-time employee (FTEs), representing a 9- percent increase from the previous year, bringing the sector’s total headcount to 1.44 million.
Leading property management and consultancy firm Colliers Philippines said the upbeat outlook in the local office occupancy depends on the return to office of the ITBPM companies from their WFH arrangement during the two-year pandemic.
Colliers said the office space market finally turning a corner as it recorded a positive net take-up in Q1 2022 after seven consecutive quarters of negative absorption.
Traditional and outsourcing companies continue to dominate demand as they take advantage of the rental correction and availability of new office buildings in major business districts. Companies’ return to-office mandates should also support office absorption over the next 12 months.
Colliers recommends that tenants that are still in a wait-and see mode consider occupying flexible workspaces. Those with long-term occupancy plans should lock in spaces in new and sustainable office buildings and take advantage of rental corrections and other concessions given by landlords. Meanwhile, landlords should proactively capture demand from new start-ups given a more liberalized and competitive business environment.
Traditional and outsourcing occupiers dominated take-up in Q1 2022. Colliers projected net absorption to recover in 2022 as firms execute return-to-office plans.
In 2022, Colliers see the completion of 821,900 sq meters of new office space. Nearly 60 percent of the new supply is likely to come from the Ortigas CBD, Makati Fringe and Bay Area. Office rents dropped by an average of 3.1 percent quarter on quarter in Q1 2022.
Colliers also expects a slow recovery in lease rates starting in 2023 based on higher pick up in demand from outsourcing and traditional firms.