By Bernie Cahiles-Magkilat
The Philippine Economic Zone Authority (PEZA) is willing to tweak the perpetual tax on gross income earned (GIE) to a higher 7 percent tax and even make it time-bound, but the tax incentive can only be removed if the investor has already attained return on investments (ROI).
PEZA Director-General Charito B. Plaza raised this as a compromise to the proposed Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) Bill after consulting with various economic zone locators. The TRABAHO Bill seeks to abolish or put a general ceiling on the perpetual 5 percent GIE to all PEZA investors.
“We have been consulting our locators and they are amenable to increase it to 7 percent instead of lowering the corporate income tax (CIT),” said Plaza, the author of the PEZA Law.
Plaza, however, emphasized that the timeframe for GIE availment must be determined on the agreed ROI for specific industries, which will be identified yet under the proposed Strategic Investment Priorities Plan (SIPP). This means, there will be no blanket ceiling on the number of years of the GIE availment for investors.
“We have to consider also their investment, there is a need for them to attain ROI, which should be the basis of the length of the 7 percent GIE,” Plaza explained.
“The SIPP is still being deliberated. So we start from there, the classification of, to determine how much will be the ITH, how many years will the ITH end, or will we add ITH. It should be carefully evaluated and studied.”
Plaza also said that a higher GIE would ensure that the province will get a share of the tax, which under the existing law only benefited the local government unit where the ecozone is located.
According to Plaza, locators agreed to a higher but timebound GIE instead of the lowering of the 30 percent CIT, which she said is prone to corruption with the government at a losing end because of the foregone revenues.
A higher GIE is one way of improving the ease of doing business in the country because investors will no longer deal with the Bureau of Customs and the Bureau of Internal Review.
“Whereas in the GIE, it is based on sales invoice, making it very transparent, no corruption,” she added.
At present, a perpetual 5 percent GIE is granted to PEZA investors after exhausting the ITH, which they enjoy for 8 years for pioneer enterprises and 6 years for non-pioneer.
Aside from the higher but timebound GIE, Plaza said that PEZA must be allowed to continue granting ITH to investors if they are introducing new products with new technology, additional investments and if they invest in the countryside.
“If they’re going to introduce new products, new technology, or expand that will create several workers, we will continue to give them additional ITH,” she noted.
PEZA is the lone government agency fighting for a status quo of the current incentives regime in the country explained that the TRABAHO Bill in its current form will surely scare investors away.
The latest PEZA approved investment pledges already declined by 56 percent as investors held off expansion programs because of the uncertainty brought about by the TRABAHO Bill, said Plaza.