The Philippine Economic Zone Authority (PEZA) said the newly-enacted Corporate Recovery and Tax Incentives for Enterprises (CREATE) offers “win some, lose some” opportunities for different industries due to some provisions vetoed by President Duterte from the original draft of the bill.
PEZA deputy director-general Theo Panga said included in the line-item vetoes of the President is the removal of extension of availment of tax incentives by existing registered business enterprises (RBEs) for the reason that “extension of incentives for existing projects is unfair to ordinary tax payers/unincentivized enterprises.”
“This may be a sound fiscal policy, but from the perspective of RBEs which have relied on fiscal incentives for sunk-in investments as committed prior to the effectivity of CREATE—they might consider the act as bad faith on the part of the government,” Panga said.
In short, CREATE did not adopt the clamor of ecozone industries for status quo to retain their existing and more advantageous incentives, which is a perpetual 5 percent tax on gross income earned (GIE).
Panga said under the newly signed law, RBEs will have to comply with the 10-year sunset period after the lapse of the income tax holiday (ITH) and graduate to the regular 25 percent corporate income tax (CIT) rate.
“This scenario could be a make or break for the Philippines as the affected ecozone locators,” Panga said.
He said some companies might decide to retain their facilities and invest in new projects to be entitled to a longer ITH and special CIT (SCIT) rate of 5 percent on GIE for a total of 14 to 17 years — 4 to 7 years of ITH plus CIT for 10 years or enhanced deduction for 10 years.
On the flipside, Panga fears enterprises might just pack up and leave to seek a better location and more willing host-country for their investments.
But Panga said PEZA welcomes the move by President Duterte not to grant as additional incentives the SCIT rate of 5 percent on GIE to domestic market enterprises (DMEs) as export market enterprises (EMEs) need enhanced incentives to compete in the international market.
“In due time, we pray that our existing locators will be able to adjust to CREATE and secure their investments in the Philippines. Considering the pioneer locators which have been with PEZA for the past 20, 25 years and especially big ticket investors who have invested in the country because of the conducive environment inside the ecozones/freeports —we have high hopes that they will stick it out with us through thick and thin,” Panga said.
The saving grace, he said, is that CREATE retained the “separate customs territory” status of the ecozones as this will ensure he continued viability of PEZA in the performance of its mandate and in sustaining the success and long-term operations of our valued ecozone investors.