PEZA to fight for tax incentives

The Philippine Economic Zone Authority (PEZA) intends to lobby for the government to retain the zero value-added tax (VAT) privileges of locators and manufacturers in economic zones, PEZA Director-General Charito Plaza said Thursday.

"We will not settle for compromise. We will fight for our incentives," Plaza said told the Asia CEO Forum in Pasay City.

The Duterte administration is seeking legislation of a tax reform package to raise funds for an ambitious infrastructure build up, by imposing additional and higher taxes on fuel and car sales and expanding the value-added tax base.

"We reviewed the proposed tax reform bill and everything is okay except that the incentives of PEZA will be hit by this proposed tax reform bill, especially the zero VAT that we provide as incentives to our locators," she said.

PEZA manufacturers and locators currently enjoy a zero-VAT rate on local purchases.

No sense

Plaza noted it doesn't make sense to remove the VAT exemption because the government will eventually refund the VAT.

"The problem is that the refunding of VAT takes four or six years ... So if this will be imposed, 12 percent will be added to the original cost of goods and supplies," she said.

"What we see foresee – if this will be imposed – our industries would rather import all the supplies that they need because we are giving a duty free importation ... Our local suppliers will be affected, there will be no more buyers of supplies because they would rather import," she added.

PEZA is not opposing the tax reform bill but is making an appeal to have the tax incentives in economic zones retained.

"So we are compiling all the position papers. I asked the chambers and the different sector industries in PEZA to submit their proposals to the tax reform bill," she said. 

The PEZA position paper will be submitted to the Congress "any time," said added.

Craig Reines, chief operating officer of Sitel – a PEZA locator – said removing the tax exemption from economic zone locators will “reduce” the country’s attractiveness to foreign investors.

Safety net

To convince the Department of Finance to keep the zero-VAT privilege within economic zones, PEZA intends to put in place alternative measures such as monitoring allowable tax deductions of partner-locators, Plaza noted.

“We are promising safety nets. One of the safety nets is we will have an e-system na mamonitor ‘yung, halimbawa, when they go to BIR (Bureau of Internal Revenue), what are the deductions that they will submit to BIR,” she said.

After the income tax holiday of a PEZA-registered enterprise expires, companies pay only a 5 percent tax on gross income.

“Minus pa dun sa 5 percent ang allowable deductions like power bills, water bills, telco services and other purchases that are directly needed in the manufacture of their goods,” Plaza said.

PEZA will strictly monitor compliance among in proper filling of allowable tax deductions, she added. — VDS, GMA News