The Philippine Economic Zone Authority (PEZA) has rejected options offered by legislators and economic managers in the propose Corporate Recovery and Tax Incentives for Enterprises (CREATE) and insists on its request to exempt exporters from the tax reform.
Charito Plaza, director-general of the PEZA at the general membership meeting of the Semiconductor and Electronics Industries of the Philippines Inc. over the weekend, appealed to President Duterte, the Senate and the House of Representatives to maintain the status quo on the incentive regime saying this is not the time to change the rules as the country is reeling from the pandemic.
The debate in Congress on CREATE or Senate Bill 1357 now centers around Option 2 offered by Sen. Ralph Recto which makes a distinction between domestic and export enterprises where the latter are those registered in an investment promotions agency engaging in manufacturing, assembling or processing activity, and information technology/business process outsourcing services resulting in direct exportation of at least 70 percent of its total production or output; or sales of its products that will form part of the final export or product or service (indirect exportation).
While there will be no change in current incentives for export enterprises — they will enjoy 5 percent income tax rate in perpetuity as long as they remain export enterprises.
For both domestic and export enterprises, the tax holiday period is four to 7 years.
“There is a fourth option, which is an enhancement of option two which was the choice of the Department of Finance. But then we still would like to (push for) our original request for appeal to the Senate and Congress. We are still in this pandemic. It is best to exempt the export enterprises from CREATE because everybody’s struggling to survive. So when other countries are in fact are
lowering their taxes, and are adding more incentives to keep their existing companies and attract the transferring investors here, we are changing the rules,” Plaza said.
She added changing the rules will mean reneging on the country’s contracts with these investors which put their money based on their feasibilities study and conditions set by the government.
“CREATE is a very beautiful piece of legislation. But we have to try it first on the domestic enterprises which deserve to receive incentives,” Plaza said.
She added with only a year and five months left of the term of President Duterte, the new administration should be given a free hand in addressing economic investment opportunities, and in making the Philippines globally competitive.
In the same forum, Sen. Imee Marcos said senators are “ haggling desperately with our finance managers to retain the 5 percent” tax on gross income earned (GIE) in perpetuity and are “still bargaining” over the government’s plan to set up the Fiscal Incentives Review Board (FIRB).
Marcos said the economic managers are proposing a 5 percent GIE for 10 to 15 years instead.
On FIRB, Marcos said “there should not be another bureaucratic layer on top of PEZA, BOI (Board of Investments) or whichever ecozone authority.”
Under CREATE, the tax rate will immediately fall to 25 percent from 30 percent until it goes down to a more regionally competitive 20 percent within a 10-year period
“(CREATE) has been contentious and difficult.
It is simply not the moment to scare investors with new rules of the game. The imposition of new rules on incentives would make everyone wary of new fresh investments. It will also derail many of the plans for expansion with higher taxes on the original investors,” Marcos added.
The Joint Foreign Chambers on Friday expressed support to the amendments proposed by Recto a for grandfathering incentives will ensure that existing investors will continue to invest in the country in the long-term and signals to prospective investors that there is stability and consistency in the implementation of policy in the country.