In 2020, all of our routines were disrupted, our emotional endurance and strength were tried and our resilience and tenacity to overcome difficulties were put to the test. Our practices and theories on how to perform work efficiently were not only challenged but were rendered almost impractical by a novel and potent, albeit unseen, adversary. Indeed, the highly transmissible and deadly virus, widely known as COVID-19, rendered our regular day to day onsite office work almost implausible. As COVID-19’s threats became more real than apparent with the World Health Organization’s declaration of a COVID-19 pandemic, the Philippine government ensured to enact measures to encourage remote work arrangements in the hopes of limiting the transmission of this disease while continuing business operations to soften the adverse economic impact of the pandemic. The Philippine Economic Zone Authority (PEZA) is no exception as it has been making praiseworthy efforts to ensure that its investors as well as their employees are protected from this virus while staying true to their mandate to protect investments and grant incentives to qualified investors.
Work from Home (WFH) Arrangement for PEZA-registered Information Technology (IT) Enterprises
Below are the issuances released by PEZA on this matter:
Areas for clarification
While PEZA’s efforts to curb the adverse effects of the pandemic to its investors and their employees are remarkable, it may be good to also consider providing more detailed guidelines on how to implement and operationalize these measures. Common questions on these issuances include the following:
Additional COVID-19 Deductions for 5% Gross Income Tax (GIT) Purposes
PEZA, with the support of the BIR through a letter from Commissioner Caesar Dulay, has identified several additional COVID-19 related deductions in the computation of the 5% Gross Income Tax (GIT). PEZA released PEZA MC No. 2020-053 dated 24 November 2020 providing for guidelines on these additional deductions which may be considered as direct costs for purposes of computing for the 5% GIT, as follows:
The BIR finds that expenses relating to COVID-19 testing are not directly related to the rendition of registered services since the registered activities of a PEZA-enterprise may still be carried out without such costs. Therefore, unless it can be proven that such COVID tests are directly related to the registered service, then BIR is of the position that these must be classified as operating expenses and not direct costs.
Areas for clarification
Given the nearing income tax return deadline in April 2021, it is ideal to have an alignment between the BIR and PEZA on the scope, limits and applicability of these additional deductions. Questions and concerns raised in connection with this issuance are as follows:
In addition, PEZA is also inclined to relax the required export threshold for export-oriented manufacturing PEZA enterprises. According to news reports, PEZA is leaning towards allowing local sales of up to 50% of its total sales which is significantly higher than the original 30% limit to local sales. PEZA-registered export-oriented manufacturing enterprises that may benefit from this move will surely appreciate an official issuance and specific guidelines on the matter.
It is encouraging to see how PEZA stays true to its mandate by devising creative ways on how to properly manage PEZA incentives even in these extraordinarily trying times. After all, it is undeniable that PEZA-registered enterprises significantly help the Philippine economy and the thousands of Filipinos under their employ to survive and weather this pandemic. Hopefully, through clearer guidelines from PEZA and the BIR, PEZA-registered enterprises will be able to maximize the benefits from these incentives as we continue to navigate and find our way through the new normal.
Maria Myla S. Maralit is a Partner and Kathleen Teresa M. Ramos is a Manager from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.
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