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Philippines decides outsourcers need incentives to stick around, after all

Just three months ago senior bureaucrat said 'Tax perks are not that important to investors.' Contortions now in place to keep cash flowing

The Philippines last week decided to extend incentives offered to foreign outsourcers that offer working from home to local employees.

The nation has used incentives to lure outsourcers to its shores, on the condition that they operate in special economic zones or freeports. The policy has been so that such companies contribute around 3.5 percent of the Philippines gross domestic product.

But the COVID-19 pandemic saw many of the industry's workers move out of offices in special zones and work from home. Whether incentives and subsidies would continue while most staff work from home has become a contentious issue, given the point of the incentives is to spur development of business precincts and surrounding areas, and by doing so grow and diversify the overall Philippine economy.

Last week, the nation's Fiscal Incentives Review Board (FIRB) decided the incentives are here to stay – and even signed up a new company for the government payments.

"We recognize that the work-from-home arrangement is the new business model of most of the registered business enterprises," said Finance Secretary and FIRB Chairperson Benjamin Diokno.

But the Board can only pay incentives to companies that work in the designated zones.

But the Philippine Board of Investments (BOI) can pay incentives to organizations that do their business anywhere.

So the FIRB is transferring companies to the BOI. Outsourcers that have shifted to working from home will therefore remain eligible for incentive payments, which will come from a different agency.

That's a significant shift from the Philippines position expressed in June, when FIRB welcomed the decision by business process outsourcer Concentrix Corporation to forgo tax incentives after deciding to let its staff work from home and/or at community hubs.

"This goes to show that tax perks are not that important to investors doing business in the Philippines," stated Juvy Danofrata, an assistant secretary at the Philippines Department of Finance and the head of FIRB, at the time.

Danofrata was later involved in vivid domestic debate about whether, or how, to make arrangements for incentives to continue. That debate muted discussion on whether incentives should continue, instead focusing on how to do so legally given that FIRB's money is tied to use of offices in the designated zones.

Hence the move to BOI, which officials have promised will be a seamless act of paper-shuffling that won't be disruptive.

Government officials are already talking about amending the rules under which FIRB operates to allow the Philippines' incentive schemes to permit work from home operations. If passed, the revised rules would mean eligible companies will be de-registered by BOI and returned to the tender care of FIRB. ®

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