President of the Global Services Association of Jamaica (GSAJ) Gloria Henry’s lobby for the Government of Jamaica to extend Customs waivers for work-at-home (WAH) for the business process outsourcing (BPO) companies across the island does not appear to be gaining traction.
The president of the organisation has advocated for the development of new supporting policies to include WAH BPO employees in Special Economic Zones designation, especially since the onset of the COVID-19 pandemic.
In response Eric Deans, chief executive officer of the Jamaica Special Economic Zone Economic Authority (JSEZA), told Caribbean Business Report that the requests of the GSAJ had implications for other sectors in the Jamaican economy which must be considered.
“The services sector, of which BPOs are a small part, makes up 70 per cent of the local economy. Therefore, the impact on the entire services sector has to be taken into account,” he reasoned.
In March 2020, as part of efforts to slow the spread of the coronavirus, a waiver was granted by the Government allowing BPO firms to remove computers out of the Special Economic Zone (SEZ) to facilitate working from home until year end 2020. The Government has since extended the waiver.
Companies designated as special economic zones operators fall under a preferential tax agreement which provides fiscal incentives that help profitability. BPOs using WAH have had to move equipment offsite, creating the challenge of losing tax benefits if there are no waivers.
The GSAJ has, therefore, continued lobbying for an extension of the waiver for BPOs since the start of 2021.
Earlier this year Prime Minister Andrew Holness announced new and extended measures under the Disaster Risk Managements Act to help contain the continued spread of COVID-19, as the country battled an upsurge in cases.
Among the orders was a new strict work-from-home order for public sector employees, starting on Thursday, March 4. At the time he encouraged private sector businesses to evaluate their operations and, where feasible, allow their employees to work from home.
“SEZs are specific geographical areas that enjoy tax and duty benefits. Activities outside this area are beyond the jurisdiction of the SEZ Act and the authority. Therefore, WAH falls within Customs — not the SEZ — jurisdiction”— Eric Deans, president, Jamaica Special Economic Zone Authority
Based on Caribbean Business Report enquiries, several BPO companies that had retained some workers in office until earlier this year, while sending home others, decided in May 2021 to send all staff to work from home.
Henry, as part of her lobby for the extension of waivers, highlighted that work from home has resulted in “increased productivity, which will play a key role in maintaining competitiveness during this pandemic”.
Still, Deans is sceptical. “The concept of work at home is fully supported by the SEZ authority. However, the context must be taken into consideration.”
Firstly, he said, the local legislative context must be borne in mind.
“SEZs are specific geographical areas that enjoy tax and duty benefits. Activities outside this area are beyond the jurisdiction of the SEZ Act and the authority. Therefore, WAH falls within Customs — not the SEZ — jurisdiction.”
Secondly, requests from BPOs had implications for others within the economy who were similarly affected. The JSEZA head noted that 50 per cent of the BPO’s do not operate in the SEZ [and yet] they have been found to be profitable.
Deans continued, “There is no duty on computer equipment needed for WAH, only GCT. Paying GCT on computer equipment will not make any BPO unprofitable.
“The recommendation from the Government, therefore, is for GCT to be paid on the equipment being used for WAH. Additionally the higher end BPO activities are not significantly impacted by the payment of GCT.”
He noted, meanwhile, that many BPO companies are now enjoying other waivers due to the pandemic, which might be affecting property owners.
Deans observed that various SEZ developers have been asked to reduce the rent charged to BPOs as only server room staff, in some cases, currently work within the SEZ defined space.
“The implication of this on the viability of the developers investment should be obvious,” he stated.
Deans noted as well that some developments within the SEZ have either not commenced or have been discontinued because of the introduction of WAH.
He further observed that the new paradigm allows for BPO’s to make profits outside of the SEZ and this has an implication for Corporate Income Tax (CIT).
“Based on the Organization for Economic Cooperation and Development (OECD) guidelines, this may be considered a harmful tax practice,” he said.
Finally, focusing on WAH, he stated, “GCT waiver on computer equipment used by BPO’s for WAH will have implications for other such items for which there is the requirement to pay GCT.
“If a BPO worker is allowed to work from home, then the next step is for him to become an independent contractor. This again may be considered a harmful tax practice.”
The JSEZA head concluded that any incentive considered for WAH should be outside of the SEZ regime.