Gov’t must continue giving investors tax breaks, other perks

THE PHILIPPINES should continue offering “globally competitive” fiscal and non-fiscal incentives to attract more foreign investments that could boost the economy, the Philippine Economic Zone Authority (PEZA) chief said, after a business process outsourcing (BPO) firm decided to give up these perks to keep its current work setup.

“A major source of attracting investors is our globally competitive fiscal and non-fiscal incentives like the ease of doing business and in lowering the cost of doing business especially in our economic zones,” PEZA Director-General Charito B. Plaza said in a mobile phone interview with BusinessWorld.

“(The government) must attract huge capital investments to the country with zero or the least tax to create multiplier effects to the economy, total development and social progress,” Ms. Plaza said. “Those huge capital investments will develop our lands, bring in new technology, create thousands of jobs and livelihood, grow micro, small, and medium enterprises (MSMEs), more businesses, and industries as suppliers of raw and manufactured materials, others as the utilities, facilities and service providers to the principal and sub-industries.”

The PEZA chief’s comments came after the Finance department’s statement on the decision of BPO firm Concentrix to give up its tax perks in exchange for a continued hybrid work setup.

Finance Assistant Secretary Juvy C. Danofrata last week said that the company’s decision shows these incentives are “not that important to investors doing business in the Philippines.”

Ms. Danofrata, who also heads the Fiscal Incentives Review Board (FIRB) secretariat, added that this move also validates the Finance department’s policy thrust to avoid granting “unnecessary” perks due to its impact on government revenues. The FIRB monitors the tax breaks granted to registered businesses.

She added that some BPO firms have been enjoying these incentives “for a long time.”

For her part, Ms. Plaza said the FIRB’s stance is “sending wrong signals that the government is only after taxes.”

“Successful economies use strategies that provide both fiscal and non-fiscal incentives and even provide subsidies to investors. Foreign direct investments and multinational companies who have branches in many countries of the world weigh the efficiency factors that contribute in lowering the cost of production, of profitability, and in doing business,” Ms. Plaza said.

Incentives granted to BPO companies located in economic zones are tied to how much work they perform on-site. The on-site work rules were eased during the pandemic, but the relaxed regime expired in March, mandating all businesses to implement a 100% on-site work arrangement in order to keep their incentives.

On the other hand, the PEZA is allowing its registered firms to implement a 70% on-site and 30% remote work arrangement until Sept. 12, or the end of the declared national state of calamity, as long as they apply for letters of authority.

Under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, companies registered with investment promotion agencies like the PEZA are eligible for perks like an option to pay a 5% special corporate income tax in lieu of other taxes, an income tax holiday, and enhanced deductions.

These incentives are subject to compliance with Section 309 of the Tax Code, which requires that the company’s business must be conducted “within the geographical boundaries of the zone or freeport” in which the project or activity is registered. — Revin Mikhael D. Ochave