The Philippine Economic Zone Authority (PEZA) board yesterday voted to support a bill rationalizing the country’s incentive system after months of deliberation.
Ramon Lopez, secretary of the Department of Trade and Industry (DTI) PEZA board chair, presided yesterday’s special board meeting to push the Department of Finance (DOF)-backed Corporate Income Tax and Incentives Rationalization Act (CITIRA) but with some refinements.
Charito Plaza, PEZA director-general, after the meeting said “there must be a happy compromise to end the agony which has created uncertainties affecting expansion plans and coming in of new investments.”
Lopez in a text message said for a smoother transition, discussions will be on the number of years in the sunset provision for existing locators, as well as extra years of income tax holidays and lower tax rates for new projects in strategic, high technology industries with preference on locating in least developed areas.
Lopez said the board meeting emphasized the concerns of the stakeholders are being addressed.
Lopez said with these adjustments, the PEZA Board together with its management led by the director-general, “has officially aligned its position to give strong support to the CITIRA and its parameters of having longer performance-based, time-bound, focused and transparent set of incentives.”
With this, Lopez said, Plaza will no longer ask for status quo or exemption from the CITIRA, which was a firm position taken by the PEZA leadership for many months.
“I called a special board meeting to emphasize the importance of the tax and incentives reform that we are pushing for, which has the mandate from our President and approved by the Cabinet. We had to explain fully that there are ongoing refinements in certain provisions of the bill to address the serious concerns of the stakeholders, especially the existing PEZA locators, and some senators who are equally concerned on minimizing any possible repercussion on jobs if some firms leave the country,” Lopez said.
Plaza said the agency has reconciled its differences with the DTI to support the CITIRA with the “openness of the DOF and the DTI to finetunings.”
Plaza said the DOF and the DTI will consider PEZA’s stand of an enhanced tax rate on gross income earned (GIE).
She did not specify but the incentive allows PEZA-registered companies to pay a preferential rate of 5 percent on GIE.
Plaza also said the DOF and the DTI are also willing retain the one-stop shop nature of PEZA which has made doing business with the agency seamless.
Plaza said another refinement involves the finetuning of the powers of the Fiscal Incentives Review Board (FIRB) with “the level of review that will not downgrade PEZA’s granting of incentives and not create more red tape that will discourage investors.”
FIRB was to have an oversight function on investment promotion agencies (IPAs) and approve all incentives.
Plaza in a statement said PEZA proposes the settting of a threshold in the amount of investments of big-ticket or strategic projects that will be endorsed to the FIRB for review and confirmation. Otherwise, another option is to require other IPAs to include a DOF representation in their respective boards following the set-up of PEZA Board.
Plaza said if her proposal is carried, current PEZA-registered enterprises can choose between a longer transition of five to 10 years, which can ensure existing investors of the grandfather rule, or may shift to the new incentive system under CITIRA.
Plaza added PEZA also aims that uts proposed increase of its current GIE tax regime from 5 percent to 7 percent will be considered in CITIRA instead of the corporate income tax rate.
Plaza recommended the inclusion of the following enhancements to the CITIRA bill subject to the Senate’s technical working group review and consideration:
A fixed 10-year or 15-year transition period to be extended to the locators on a per project basis to provide for a common sunset period considering the usual term for the end of life of products and useful life of equipment.
Continued enjoyment of tax and duty free importation of production-related materials by ecozone locators to put them on equal footing with free port-registered enterprises.
Recognition of locators’ indirect/constructive exports as part of export sales since inter-zone sales create local value-adding and backward linkages.