The Board of Investments proposed several revisions to the Tax Reform for Attracting Better and High Quality Opportunities or Trabaho bill, including the grant of tax incentives for up to five years, instead of just two to three years.
A document submitted by the BoI to the Finance Department on Oct. 18 showed that the former wanted an income tax holiday of five years and other income tax-based incentives covering five years for select investors.
“This is to make our income tax incentive competitive with other Asean countries, specifically Vietnam, Malaysia and Singapore,” the BoI said in the letter.
The BoI is one of the two major investment promotion agencies, the other being the Philippine Economic Zone Authority. Companies registered with the two agencies enjoy income tax holidays of four to eight years and 5 percent special tax on gross income after the lapse of the ITH period.
The BoI said domestic input expense incentives should be adjusted to five years, after the ITH period expired to encourage exporters to source their raw materials locally and sustain the local supply chain.
It said many local industries were currently doing low-value back-end processes in the value chain. The incentive will upgrade and address market failure as the industries build up competitiveness.
“Without addressing this market failure, the Philippines might not be able to grow and develop new and high value added exports,” the BoI said.
The country’s trade deficit hit $35 billion in 2017, as most companies sourced their materials from other countries.
The BoI also proposed the reduction of export threshold from 90 percent to 70 percent to support the growth of raw materials, parts and components sourcing.
It also wanted to exempt economic zones from import duties, a practice similar to freeports, as opposed to five years of exemption under the Trabaho bill version.
“Providing for only five years of exemption to ecozone will adversely affect the price competitiveness of our exports,” the letter read.
The BoI pointed out the importance of the continuation of direct remittance of the share in taxes of local government units’ hosting economic zones.
It said the practice would help promote the ease of doing business within ecozones and freeports.
The national government expects to have the Trabaho bill approved before the end of 2018, despite the strong opposition from various business groups.