Looking at BPO issues beyond the WFH debate

Affected workers gnashed their teeth, bemoaning the FIRB’s decision as not considerate of possible pandemic risks. BPO companies, through the IT and  Business Process Association of the Philippines (IT-BPAP), requested for more time to effect “a smooth transition.”

The Philippine Economic Zone Authority (PEZA), which dangled generous perks for BPO companies to locate in special economic zones, likewise expressed support for the information technology-business process management (IT-BPM) enterprises’ request for an extension of the WFH scheme. It even commiserated with BPO employees over a host of issues, including the higher travel costs of commuting given today’s costly fuel.

And because it is election time, a number of politicians voiced their support to extend WFH arrangements for workers in the IT-BPO industry, debunking the FIRB’s reasoning that employees’ return to office would help micro, small and medium-sized businesses that depend on BPOs to recover.

Many of the arguments forwarded by those who support WFH arrangements, even on a hybrid platform, would make sense. If public transportation rates were raised, BPO employees would save on transport costs. For workers who live with the elderly, the risks of them transmitting the coronavirus would be much lower. Not commuting to and from work daily frees up time lost in traffic, to be spent instead on family life.

It’s the law

Unfortunately, the FIRB stands on reasonable ground too. Since BPOs that provide services for overseas clients are often registered with PEZA, they enjoy income tax holidays and pay only five  percent on gross income, instead of 25 percent as provided for by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Under PEZA laws, registered BPO companies may only avail of the tax incentives if their revenue-generating activities are performed within the economic zones.

At the start of the lockdowns in 2020, PEZA issued a memorandum circular based on requests by BPO companies asking for its employees to be allowed to WFH, a move deemed to enable their operations to continue and to keep the industry alive.

From the start, the PEZA circular was deemed to be transitory, to be in effect only during the pandemic to ensure the health safety of BPO employees. The first circular issued was valid until July 31, 2020; succeeding circulars have extended the WFH scheme several times after.

WFH can work

Two years with WFH arrangements in place for over half of the employee force has made BPO companies realize that the system can work. Workers too have expressed an overwhelming preference to continue working from home or a hybrid version of it that requires them to report to the office every so often.

To the management of BPO firms, WFH increased employee productivity, encouraged work-life balance, reduced absenteeism and resignations, and allowed them to widen their resource and recruitment pools.

While those operating under PEZA jurisdiction have agreed to abide by the FIRB’s non-extension of the WFH scheme, IT-BPM enterprises have pledged to keep on trying to convince government to allow a workable WFH or a hybrid model in the longer term.

PEZA has vowed to help BPOs, citing the support given by India’s government to WFH initiatives that started during the pandemic, but are now permanently integrated in new guidelines designed to attract more business and talents in the IT industry.

India continues to be a major IT-BPM player on the global stage, competing keenly with the Philippines for investments and cheap English-speaking labor. As the industry maneuvers its growth through new developments in technology, such as artificial intelligence, WFH is seen as an enabler to attracting programmers who work best outside a formal work setting.

Initiative to streamline tax incentives

The FIRB, a multi-agency body chaired by the Department of Finance, will likely allow a more in-depth review of incentives given to BPO companies under PEZA stewardship if only to align them with what India and new competitor countries like Indonesia and Thailand will be or are already offering.

BPOs, after all, are still a top dollar earner for the country while providing employment to millions. The growth potential also continues to be attractive enough for government to ensure that the country provides a nurturing environment for the long term.

The IT-BPM sector had narrowly survived the current economic team’s initiative through the CREATE Act of 2021 to streamline all the taxes and incentives laid out by PEZA in special economic zones. This had helped BPO companies to expand even during the pandemic, and even with the moratorium on building new economic zones for the industry in Metro Manila.

However, the DOF, together with the National Economic Development Authority (NEDA), has maintained a view that there are just too many investment promotion agencies in the country that grant fiscal incentives, which in turn have created too many loopholes that businesses take advantage of to avoid paying taxes.

Discussions on the WFH issue are fine, but we must not lose track of the real concern, i.e., how to sustain the growth of the sector as a major tax revenue source considering the moves of other countries to gain more share of the BPO business. This is what our government and sector representatives should focus their discussions on.

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