By Bernie Cahiles-Magkilat
Trade and Industry Secretary Ramon M. Lopez, chair of the Philippine Economic Zone Authority (PEZA), yesterday expressed preference for a 15-year sunset provision on the 5 percent perpetual tax on gross income earned (GIE) enjoyed by PEZA-registered enterprises.
Lopez, who is also chairman of the Board of Investments, said they are in agreement to put a sunset provision to the 5 percent perpetual gross income earned tax being enjoyed by enterprises inside the PEZA ecozones. This incentive is enjoyed by PEZA investors after the expiration of their income tax holiday, which could normally run between 4-6 years.
Lopez said that a 10 to 15-year sunset provision would be sufficient even as he cited that some business groups also understand the need to cap the perpetual 5 percent GIE being pushed by the Department of Finance.
“What is important is a reasonable transition period,” he said.
Earlier, PEZA Director-General Charito B. Plaza argued that there has been no perpetual 5 percent GIE for PEZA-registered enterprises, but companies continue to expand and update their products and with that they are also given additional incentives.
PEZA investment approvals in the January-February period this year steeply declined by 21.7 percent to P20.99 billion as against P26.81 billion in the first two years last year, which Plaza blamed to the uncertainty created by TRAIN 2.
According to Plaza, the government knew that foreign business chambers and foreign embassies have submitted their petitions to the Department of Foreign Affairs, Congress and Philippine embassies abroad of their opposition to the higher taxes under TRAIN 1 and the proposed removal of tax incentives in TRAIN 2.
“The 22 percent drop in investments is not about PEZA performance,” Plaza said stressing that PEZA has been fighting for the retention of incentives.
Lopez expressed optimism that investors’ interest in the Philippines will come back once there is already a clearer understanding of the TRAIN 2, the second package of the government’s comprehensive tax reform program which calls for the removal of some tax incentives to investments.
According to Lopez, the ongoing discussions are causing uncertainty but once the issues have been clarified. He expressed hope that clarity of issues can be concluded within the year so investors’ appetite will also come back.