Accommodating flexible work-from-home or hybrid-work arrangements is a positive step towards sustaining the Philippines’ competitiveness in the IT-BPM landscape.
The information technology and business process management (IT-BPM) sector is the country’s largest contributor of employment and foreign exchange revenue, posing a 9.1% increase in full-time employees (FTEs) to 1.44 million and a 10.6% increase in revenue to $29.49 billion in 2021. The industry has been a major pillar of the economy as it continued to contribute new employment and export gains during the pandemic. Colliers believes that stable fiscal policies, such as work-from-home (WFH) arrangements, must be established for the Philippines to fully adopt to global work trends and technological developments and to strengthen our competitiveness in retaining existing and attracting new IT-BPM locators.
Under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, projects or activities registered under an investment promotion agency, such as the Philippine Economic Zone Authority (PEZA), are required to conduct their business within a freeport or ecozone to be eligible to the tax incentives provided by the law. Since April 2022, PEZA locators, including IT-BPM companies, have been temporarily permitted to adopt a 70% on-site and 30% WFH arrangement until September 12 without losing their tax incentives. However, with President Marcos’s pronouncement (through Presidential Proclamation No. 57, s. 2022) to extend the national state of calamity until end of 2022, the 70–30 WFH scheme was consequently extended.
With the WFH polices and business environment still indefinite, many IT-BPM companies have been deciding if they should transfer their registration from PEZA to the Board of Investments (BOI) to be able to enjoy tax incentives without being bound by any zonal limit. In order to resolve the impasse on the sector’s tax incentive issue, the Fiscal Incentives Review Board (FIRB) has allowed the smooth transfer of registration of IT-BPM companies between the two investment promotion agencies. This development enables tax incentives to be continued after the transfer of registration from PEZA to BOI. Colliers believes that the decision of the FIRB establishes a more enduring solution to the issue, allowing IT-BPM companies to continue availing tax incentives without violating laws relating to ecozone limits.
Jack Madrid, president and chief executive officer of the IT and Business Process Association of the Philippines (IBPAP), said in a statement that the FIRB’s decision to allow hybrid work arrangements if IT-BPMs transfer their registration will help the industry expand further. “WFH/hybrid work is a game changer for the Philippines and the sustainability of the IT-BPM industry, and it will be a contributing factor to our ability to create 1.1 million new direct jobs for Filipinos, generate billions more in revenue, and significantly increase our countryside footprint by 2028,” says Madrid.
With the government’s recognition that the flexible models of working are the way forward, the competitiveness of the country’s outsourcing industry may now be at par with other markets such as India, Brazil, Malaysia, and the United States who have also changed their existing laws to be more inviting to the IT-BPM industry. The Indian government, for example, has decided to allow registered businesses in economic zones to adopt WFH policies without losing their tax incentives, creating more employment opportunities in the countryside.
Colliers believes that the continuity of incentives under both PEZA and BOI reaffirms the spirit of CREATE to equalize the incentives across the different investment promotion agencies and to retain tax incentives under a work-from-home or hybrid-work scheme. Furthermore, this development minimizes the risk of disruption for existing locators (i.e., additional tax penalties, employee attrition, etc.), which will allow them to focus on growth plans now that the policy moving forward is certain.
Since talent is one of the main drivers for IT-BPM companies to put up business in the country, welcoming policies that will help outsourcing occupiers retain their talent will strengthen the argument to invest in the Philippines. Sustaining the Philippines’ competitiveness in the IT-BPM landscape by accommodating flexible WFH/hybrid arrangements will bode well for the country to become a strong investment destination and help the local IT-BPM industry achieve its growth targets.