The Department of Trade and Industry (DTI) is looking at giving high export and high job generating investments more time to shift to corporate income tax (CIT) from the preferential rate of 5 percent in gross income earned (GIE), and buy more time while infrastructure gaps are being addressed.
Ramon Lopez, trade secretary, said DTI is proposing a minimum of five years as transition to all projects now enjoying the 5 percent tax rate on GIE.
However, the DTI will be more generous to those exporting 90 percent of their products or are employing 3,000 by giving them a longer eight-year transition period.
Lopez expressed confidence on the passage the Corporate Income Tax and Incentives Rationalization Act (CITIRA) before end of this year now that a major hurdle has been surmounted; that is how to minimize the risk associated with a short transition period for export companies to shift to CIT.
Lopez said that at recent hearing of the Senate ways and means committee, senators have raised concerns over CITIRA’s impact on jobs.
“There is more openness for a longer transition to a more acceptable (period). Everybody agrees to the lowering of taxes but there has to be that balance… Unlike before when rationalization of incentives were being discussed, the reforms now are matched with a lowering of the tax,” Lopez said.
“We are discussing with the DOF (Department of Finance) and there is openness in having a longer transition to take into account for time for companies to adopt to the
new system… those with new projects and give time to the development of all these infrastructure,” he added.
“The incentives will put the Philippines at par (with those given in other countries) due to higher cost of infrastructure, cost of power, logistics and wages. With Build, Build, Build, we will start to catch up in infrastructure… that is part of the reason we need to buy more time for the transition, that is the basic (principle),” Lopez also said.
Another issue nearing resolution is the scope of functions of the Fiscal Incentives Review Board (FIRB).
Lopez said FIRB will approve big ticket projects, the threshold cost of which is being determined. The investment promotion agencies (IPA) will recommend such projects to the FIRB.
Projects costing below the threshold will be approved by IPAs but FIRB has the oversight function of evaluating and even vetoing the IPA action.
The approval process will thus be ministerial as the projects are listed in the Strategic Investment Priorities Plan.