The Philippine Economic Zone Authority is seeking a compromise with the Senate on the second package of tax reforms, saying it will agree to a higher tax rate on gross income earned by investors as long as they recover their investments faster.
Peza director-general Charito Plaza said locators would accept up to 7-percent tax on gross income earned, instead of the current 5 percent, if the government would allow investors to recoup their investments earlier before all tax incentives are phased out under the proposed Tax Reform for Attracting Better and High Quality Opportunities or Trabaho bill.
The Trabaho bill aims to remove most corporate tax incentives, such as the six-year income tax holiday enjoyed by foreign and local investors, and replace it with a 20-percent corporate income tax.
New Peza locators currently enjoy a six-year income tax holiday and exemption from payment of import duties and taxes on imported machinery and equipment and raw materials. After the lapse of the ITH, these companies just pay a perpetual 5 percent GIE tax.
Plaza said a higher GIE tax would be more transparent than corporate income tax. “Whereas with the GIE, it will be seen in the sales invoice that this much is their gross. And 5 percent or 7 percent of their gross will be the share of the government. This is crystal clear without room for corruption,” she said.
Plaza encouraged investors to disclose how long they would need to recover their investments so Peza could propose a more flexible term for income tax holiday. She said the agency would also suggest to the Senate the extension of ITH whenever a new product or a pioneering technology was introduced by a company.
The agency is currently identifying the kinds of investments that should merit longer or extended ITH.
“We should be able to determine the classification of these industries, how much will be the ITH, how many years will the ITH end, or will we add ITH if they introduce new innovations. It should be carefully evaluated and studied,” Plaza said.
Plaza said the Trabaho should not be railroaded, as what happened to the first tranche of the Tax Reform for Acceleration and Inclusion law.
“Let’s study carefully. Our position is to let the incentives stay. In fact, Train should even enhance it [incentives] so we could bring in strategic and basic industries. These industries will be encouraged to go to the countryside, but then we have to separate the incentives for export-oriented industries from domestic enterprise,” she said.
“With Train 2 or the Trabaho bill, these two were treated similarly. There should be a different regime of incentives for exporters and another incentive regime for domestic enterprises,” Plaza said.
The agency also underscored the need to incentivize domestic enterprises which were supporting the supply chain.
“When I talk to would be investors, I tell them we are protecting our incentives and that most senators say we will continue with Peza’s incentives. But up to now, we were heard but not listened to,” she said.