The Philippine Economic Zone Authority (PEZA) has abandoned its earlier position of a status quo on incentives but is proposing certain enhancements to the Corporate Income Tax and Incentives Rationalization Act (CITIRA) to address concerns over job losses, uncompetitive business environment and red tape.
PEZA in its comments to the CITIRA bill or House Bill No. 4157 passed last September pushes for a longer income tax holiday (ITH) for registered companies which afterwards can opt to choose from two income tax schemes.
These are a 7-percent tax on gross income earned (GIE) for 20 years or a corporate income tax (CIT) rate.
PEZA also seeks the removal of a provision forming the Fiscal Incentives Review Board (FIRB) and retaining the functions of all existing investment promotion agencies (IPAs) to grant incentives.
In its position paper on the bill, PEZA said enterprises presently registered and granted with tax and duty incentives by IPAs shall be entitled to the same incentives until the expiration of their contracts or registration agreements entered into prior to the effectivity of the Act.
PEZA also bats for the grant of ITH of four years, instead of three in the bill to those located in Metro Manila and up to six years instead of four to those located in areas adjacent to Metro Manila such as Laguna, Bulacan, Cavite and Rizal.
For those located outside these areas, PEZA wants up to eight years of ITH instead of six as proposed.
PEZA said after the expiration of the ITH, export enterprises can then choose to get a 7 percent tax on GIE or go for the CIT at the prevailing rate at the time.
The 7 percent tax on gross income is in lieu of all national and local taxes except real property on land owned by developers shall be imposed for a period of 20 years. Of that 5 percent will be paid to the national government (NG) and the remaining 2 percent shall be directly remitted to the municipality or city where the enterprise is located.
PEZA said export enterprises from the garments, apparel, textile, leathergoods, footwear industries and economic zone developers will continue to enjoy the 5 percent tax on gross income for a period of 20 years. Of that 3 percent will go to the NG and 2 percent to the municipality or city.
PEZA agrees with the bill’s reduced rate of CIT of 18 percent effective Jan 1, 2020; 17 percent, Jan. 1, 2022; 16 percent, Jan. 1, 2024; 15 percent, Jan. 1, 2026; 14 percent), Jan. 1, 2028; and 13 percent, Jan. 1, 2030.
In reiterating its position IPAs should maintain their functions and powers, PEZA said “nothing in this code shall be construed to diminish, derogate nor limit, in whatever manner, the mandates and functions of the investment promotion agencies pursuant to their charters and applicable laws. Neither shall any of the provisions under this code prevent, deter, or delay the promotion and regulation of investments, processing of applications for registrations and evaluation of entitlement of incentives and the amount of incentives that IPAs may grant.
PEZA opposes the creation of the FIRB to which the IPA shall recommend the incentives to be granted.
For the President to exercise his power to grant or deny incentives, PEZA leaves it to the Board of investments to make the recommendations.
This provision will enable the president grant or deny incentives in addition to those that are provided under this code, including a longer period to highly desirable projects such as those with comprehensive sustainable development plan with clear inclusive business approaches and innovations; or will have ) minimum investment of $1 billion or a minimum direct employment generation of 1,500.
In a separate letter to Trade Secretary Ramon Lopez, PEZA director-general Charito Plaza said if the proposed enhancements to the CITIRA bill are passed, the government will save P21 billion as this initial allotment structural adjustment fund, meant to compensate workers displaced by the rationalization of incentives, will no longer be necessary.
Various industry groups estimate job losses of 700,000 if CITIRA in the present form is passed.
Plaza also said the refinements will eliminate red tape.
“Creating another layer of investment approval through the FIRB is an anathema to efficiency seeking investments that go to PEZA. This will unduly add burden to what is now a very simple and very straightforward approval and registration process in PEZA,” Plaza added. (I.Isip)
