The Marcos administration is putting an end to the tax incentives previously granted to Business Process Outsourcing (BPO) firms within special economic zones that adopted work-from-home (WFH) setups during the pandemic.

This may justify BPO companies requiring a 100 percent return-to-office setup, especially those aiming to reintegrate their employees into the office environment for performance-boosting purposes and delicate corporate processes.

Justice Secretary Jesus Crispin Remulla, in a legal opinion dated January 3, contradicted the positions held by the Department of Trade and Industry (DTI), Philippine Economic Zone Authority (Peza), and the office of the presidential adviser on investment and economic affairs, Inquirer reported.

Remulla referred to Republic Act No. 11534, known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, emphasizing that “Section 309 of the Tax Code still prevails.”

He stated, “Until the enactment of a new legislation amending that law, business enterprises located in the economic or freeport zone must continue to conduct their activities within the zone boundaries if they wish to continue availing of their tax incentives under the CREATE Act.”

While WFH arrangements are not prohibited, these enterprises will no longer be eligible for tax incentives.

Section 309 of the CREATE Act specifically states that any project or activity conducted outside the geographical boundaries of the economic zone or freeport shall not be entitled to the incentives provided.

The legal opinion was sought due to conflicting positions among government agencies on the continuation of a work-from-home arrangement for Information Technology and Business Process Management (IT-BPM) firms in economic zones and those registered under the Board of Investments (BOI) after the lifting of the COVID-19 pandemic state of public health emergency.

In response, some BPO companies have reportedly withdrawn broadband or internet incentives initially provided to employees working from home at the start of the pandemic.

Various government bodies proposed different WFH thresholds, with the Fiscal Incentives Review Board (FIRB) insisting on a 100-percent work-on-site arrangement for registered business enterprises in economic or freeport zones.

Remulla clarified that the FIRB allowed registered IT-BPM firms to adopt a work-from-home arrangement as a temporary measure due to the pandemic. However, he emphasized that once the exceptional circumstance ceases, the temporary measure will also come to an end.

Notably, proposed Senate measures aim to allow companies registered with investment promotion agencies to voluntarily engage in WFH arrangements without forfeiting their tax incentives.

The government’s decision marks a significant shift for the BPO, requiring them to adapt to a return-to-office setup.