That the country's largest business process outsourcing (BPO) firm had decided to forego its tax breaks to allow its agents to continue working from home meant that fiscal perks may no longer be a top-of-mind consideration for foreign investors looking to enter the Philippines, the Department of Finance (DOF) said.
This supports the DOF's policy direction to raise revenues by minimizing—or even scrapping—tax perks, said Finance Assistant Secretary Juvy Danofrata, who also heads the secretariat of the interagency Fiscal Incentives Review Board (FIRB) overseeing the grant of revenue-eroding tax perks to qualified investments.
"This goes to show that tax perks are not that important to investors doing business in the Philippines. This validates the DOF's policy thrust to avoid the grant of unnecessary tax incentives as this is apparently not the main consideration for them to do business in the country, especially for the BPO firms that have been enjoying the exemptions and incentives for a long time," Danofrata said in a statement on Friday.
He also expressed support to the decision of Concentrix to continue with its flexible work arrangements, which started at the height of the COVID-19 pandemic.
"By giving up their incentives, the opportunity cost to the government of these incentives will be minimized, which will make us more efficient in utilizing the government's resources critical in our ongoing economic recovery efforts," Danofrata added.
‘Not necessary'
Citing a FIRB study, Danofrata said "total dividends declared by BPOs exceeded their income tax incentives, signaling that tax incentives are being used to augment shareholder returns." This suggests "that the tax benefits received by BPO firms are not that necessary as these only increase their profitability," he added.
To recall, the FIRB had ordered BPOs to return to onsite work beginning April 1. It said the work-from-home structure for BPO players operating inside economic zones was only a temporary measure amid the stringent COVID-19 lockdowns. It said 100 percent of the companies' personnel must return to their physical offices or they risk being stripped off their incentives.
Under Section 309 of the Tax Code, as amended by the Corporate Recovery and Tax Incentives for Enterprises Act last year, projects and activities registered with investment promotion agencies like the Philippine Economic Zone Authority must be conducted within the geographical boundaries of the ecozone or freeport to be entitled to tax-free perks.
"Locators inside special economic zones are accorded tax incentives with the objectives of promoting the flow of investments into the areas where these [zones] are located, generating employment opportunities and creating backward and forward linkages among industries in and around the economic zones," Danofrata said.
‘Render useless'
As such, Danofrata pointed out that "allowing registered business enterprises in the ecozone or freeport to conduct its business outside the economic zones will effectively render the objectives of establishing economic zones useless as there will be no need for them to locate inside the zones."
The DOF earlier said that the record-high foreign direct investment (FDI) inflows seen last year amid tax perk-seeking projects trending lower meant that more and more foreigners investing in the Philippines were no longer in need of fiscal incentives.
For the DOF, investors pour money into the country to tap educated and young Filipino workforce and to take advantage of a robust consumption-driven economy to sell their wares. INQ