Sunday, April 14, 2024

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are all factors that contribute to economic growth The ease of conducting business, foreign direct investments (FDIs), and the outsourcing sector all play a role in stimulating economic development.


The COVID-19 outbreak prompted an immediate shift to remote work in order to save and protect lives. This change affected the Offshoring and Outsourcing (O&O) industry, which is primarily associated with the Philippine Economic Zone Authority (PEZA), as it required Registered Business Enterprises (RBEs) to suspend operations within economic zones. As the pandemic nears its end and restrictions are lifted, PEZA has set deadlines for RBEs to meet the minimum requirement of conducting 70% of their business within the ecozones. However, the 1.3 million O&O employees who returned to their home provinces during the pandemic have resisted, resulting in a rapid increase in attrition rates as many employees have resigned.

The IT and Business Process Association of the Philippines (IBPAP), an industry association, intervened to safeguard the O&O industry from higher attrition rates which could disrupt service delivery and negatively impact the country’s global positioning in the O&O sector. The deadline set by PEZA was extended twice, and then the Fiscal Incentives Review Board (FIRB) implemented a “paper transfer” through Resolution No. 026-2022. This was made possible by the passage of the CREATE Law (Corporate Recovery and Tax Incentives for Enterprises, RA 11534) which established the FIRB and standardized tax incentives for all Investment Promotion Agencies (IPAs) such as PEZA and the Board of Investments (BoI). The BoI offers a solution for O&O companies to operate under a flexible work-from-anywhere (WFA) arrangement while still receiving tax incentives as Registered Business Enterprises (RBEs) under PEZA. In case of expansions, new entities can be registered with the BoI to avail of the same tax incentives without being limited to specific locations.fic zones.

Is PEZA still applicable to the O&O sector?

There are various approaches to addressing this inquiry, based on the specific circumstances, considerations, and goals of the RBEs. For instance:

• PEZA-registered buildings are built specifically for the O&O companies that require robust facilities, like telecom and power redundancies, for them to minimize disruptions in operations in case of calamities. Signing up in PEZA-registered buildings is a guarantee of compliance with clients’ service level agreements which reduces the risk of penalties and increases client satisfaction.

It is prohibited to move current activities to a different IPA, therefore, current PEZA RBEs must stay with PEZA while utilizing the “paper transfer” option.

If the purpose is for growth and remote work or work from anywhere, then the BoI route would be a more logical choice.

If the plan is to expand provincially and there is a shortage of PEZA-registered buildings, then registering with the BoI is the recommended course of action.

PEZA offers a convenient one-stop shop (OSS) facility to facilitate business operations. Choosing the BoI option means giving up this advantage and potentially facing bureaucratic hurdles, which is why many PEZA RBEs still prefer to be under PEZA’s governance.

The OSS is being raised as a concern of both office occupiers and landlords that affects their decision in choosing to register with PEZA or the BoI. Section 310 of the CREATE Law 

Requires all IPAs to create a “one-stop shop” or center for streamlined and efficient setup and operation of registered projects or activities. This center will also assist in coordinating with local government units and other government agencies to comply with Republic Act No. 11032, also known as the Ease of Doing Business and Efficient Government Service Delivery Act of 2018.

A recent survey by Colliers showed that nearly 80% of participants viewed the PEZA OSS as either important or highly important. Of those surveyed, 39% believed the OSS had improved, while 42% felt it had stayed the same after the “paper transfer” implementation. Reasons given for this included:

• It reduces the workload of RBEs when managing lengthy and complex procedures.

Prevent misunderstandings about who to communicate with and which department to handle.

This simplifies and speeds up the entire process, making it more convenient.

Provides access to prompt support and simplifies transactions in any given area.

However, 20% of respondents reported that the OSS has deteriorated compared to before due to the following reasons:

There are problems with BoI, Bureau of Customs, and Department of Finance. The efficiency of conducting business is no longer being achieved.

The value of PEZA’s OSS decreased after giving permission for local government units and the BFP to expand their reach into PEZA zones.

• PEZA and the BoI need to collaborate on processing paper transfers due to multiple RBE (Registered Business Entity) requests and the intricacies of each RBE’s local setup.

As part of the development of other IPAs, the participants were questioned about their knowledge of this requirement. A majority (67%) reported being aware, while the remaining participants were not. Additionally, the participants were inquired about their level of optimism regarding the BoI’s ability to establish an OSS facility in the near future. Just over half (51%) expressed hope and very hopeful, while the rest were neutral or not hopeful.

th out of 180 countries

In order to recover from the pandemic, it is crucial to increase investments and create more job opportunities. According to the Corruption Perception Index for 2022, the Philippines was placed 116th out of 180 countries.th

The Philippines ranked 95th on the World Bank’s 2019 Ease of Doing Business Index, scoring 33%, which is below the global average of 43%, among 180 countries listed.th

The indices mentioned above are key factors that investors take into account when selecting investment locations. Out of the ASEAN nations, our country holds the 6th position.th

In 2022, net foreign direct investment (FDI) inflows were lower compared to Singapore, Indonesia, and Vietnam, who had higher scores in these indices.

nd highest tax rate possible

The government’s objective is to achieve the second highest possible tax rate.nd

By 2028, the country hopes to attract the most foreign direct investments (FDIs). This will improve our ranking and increase the likelihood of obtaining FDIs, which are crucial for recovering from the economic downturn caused by the COVID-19 pandemic. Therefore, we urge the government to examine the progress of implementing this requirement and establish deadlines to demonstrate commitment and urgency to potential investors. This will make our country more competitive and successful in attracting investments.

 

Dom Fredrick S. Andaya is member of the Management Association of the Philippines. He is also a senior director and head of Tenant Representation of Colliers Philippines.

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