The answer to why employees should return to the office may take different forms. An employee of a non-PEZA registered business may think that returning to in-person work will promote effective and productive relationships among employees, as well as the betterment of the business. But for an employee of a PEZA registered enterprise, such as those in the IT-BPO sector, one word mainly answers this question: Tax.
The enactment of Republic Act 7916 or The Special Economic Zone Act of 1995 provides for the creation of “ecozones,” which are defined as selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist/recreational, commercial, banking, investment, and financial centers. Furthermore, Section 23 provides that business establishments operating within the ecozones shall be entitled to fiscal incentives.
The same goes for an investor who decides to operate a business in ecozones, and the proposed activity is one under the Philippines Strategic Investment Priority Plan (SIPP). The said enterprise can apply for tax incentives, i.e. Income Tax Holiday (ITH), Special Corporate Income Tax (SCIT), Enhanced Deductions (ED), Customs and duty exemption on importation of capital equipment, raw materials, spare parts or accessories and value-added tax (VAT) zero-rating and exemption, as provided under the Tax Code as amended by the CREATE Law.
A PEZA-registered enterprise is required to operate within the ecozones to enjoy the tax incentives. However, should the phrase, “operate within the ecozone” be interpreted literally? For the IT-BPO sector engaged in the rendition of services for clients abroad, is “operating within the ecozone” tantamount to physical presence in the establishment of all or majority of its employees? RA 7916 was enacted to attract foreign investors and make the Philippines globally competitive. In this regard, should we heed to the letter of the law or to the spirit of the law. The Supreme Court, in one of its cases, stated that, “If we must choose between a strict and literal interpretation of the law and a liberal and reasonable interpretation of the law, if we must choose between the letter of the law which “killeth” and the spirit of the law which “giveth life”, can any one doubt what our decision will be? We adopt that construction which will produce the most beneficial results.”
To make PEZA-registered IT-BPOs and registered business enterprises (RBEs) choose between continuing their work from home set up or losing their tax incentives will be indirectly asking them to choose between their business or their employees. As such, would not that be contrary to the primary purpose of the creation of the laws? Why is there a need to choose when the pandemic has taught us personally and professionally that flexibility is key in order to survive in times of uncertainty. Let us not lose sight of the reason why the laws were created. The mandate to return to office stems primarily from the goal of the government to reopen our economy. It is commendable that PEZA-registered IT-BPOs and RBEs can implement a hybrid work scheme until Sept. 12, 2022, but maybe this should not be treated as a short-term solution. It is time to build on the agility and flexibility that we were able to implement during the lockdowns and embrace the new ways of working of this new reality.
Marielle Santiago is a supervisor from the tax group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in transfer pricing practice and in general corporate tax practice by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.
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