PEZA fights to keep incentives as House deliberates on CITIRA

The Philippine Economic Zone Authority (PEZA) is fighting to keep the incentives for investors in light of the Duterte administration’s initiative to rationalize fiscal perks.

PEZA tax incentives are “not forever” and are competitive and performance-based, it said on Tuesday.

Lawmakers are still hearing the proposed law on the government’s tax incentives.

The Corporate Income Tax and Incentives Rationalization bill or the second package of the tax reform agenda aims to reduce the corporate income tax rate from 30% to 20% in 10 years and rationalize all fiscal incentives under one omnibus code. It  is now under deliberations by the House ways and means committee.

“PEZA incentives are not given to companies, enterprises, locators, or ecozone developers per se, but incentives for export-based industries are for those that are able to upgrade their products, activities, expand their projects and markets, and those who can bring technology-transfer to the Philippines,” PEZA Director General Charito Plaza said in a statement.

The proposed Corporate Income Tax and Incentives Rationalization Act or CITIRA seeks to remove the tax breaks being enjoyed by economic zone locators.

It is a misimpression that the perks enjoyed by ecozone investors are there forever since conditions are imposed on companies to receive incentives such as Gross Income Earned (GIE), zero VAT rating for local purchases, and tax and duty free importation, according to PEZA.

“PEZA incentives are performance-based from the beginning, not an afterthought. It aims to motivate and encourage companies to upgrade, grow, and perform,” Plaza noted.

American Chamber of Commerce of the Philippines senior adviser John Forbes noted that investors get incentives from PEZA if they are able to meet certain conditions such as export shipments and employment generation.

“Thus, they are conditional,” Forbes said.

“The Philippines is fortunate to be able to host these companies which usually have multiple foreign operations and can shift jobs from one country to another,” he said.

Under the Implementing Rules and Regulations of Republic Act No. 7916 or “The Special Economic Zone Act of 1995,” PEZA may suspend, withhold, or revoke import and export permits of companies that are not able to comply with the rules and regulations governing the incentives.

PEZA registered-companies are required to strictly adhere to deadlines on fiscal and performance reports, in order to avail and enjoy the incentives.

Companies are also required to submit reports pertaining to the Tax Incentives Management and Transparency Act (TIMTA) or RA 10708 since the law has been implemented in 2015.

Plaza has raised a caveat against revamping the tax incentives, saying it will weaken the trust and confidence of investors.

If “the government takes away incentives, there is a big risk that factories in PEZA will be less competitive,” Forbes noted.

In the proposed second package of the Comprehensive Tax Reform Program, the 5% tax on gross income—instead of all local and national taxes—paid by ecozone developers, operators, and enterprises or locators will be removed.

“The GIE is one of PEZA’s highlight incentives attracting investors. So it is very crucial because revenues paid to national and local government are deducted outright from the gross income of companies,” Plaza noted.

“It means that government has more to earn from the GIE and is secured of its revenues,” she said.

“GIE is significant for facilitating Ease of Doing Business (EODB),” she added.

With the GIE in place companies remit 2% of gross income direct to the local government and 3% to the national government.

“However, the removal of the GIE, as proposed by CITIRA, would be a possible ground for corruption, leakages, and inconvenience because investors would have to deal with various levels of bureaucracy,” Plaza said.

As things stand now, PEZA’s incentives have been “tried, tested, and proven to be competitive in attracting investors,” she added. —VDS, GMA News