By Bernie Cahiles-Magkilat
Economic zone developers would seek for “ahead” kind of tax incentives that would enable them to avail of tax breaks during project implementation and not years after they have developed a factory site for export-oriented locators.
The Philippine Ecozones Association (Philea), which groups the country’s various ecozone developers, is meeting with the Philippine Economic Zone Authority (PEZA) tomorrow, Tuesday, Oct. 22, to harmonize their position on the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA), which represents the Duterte administration’s second package tax reform program, the first being the TRAIN Law passed in December 2017.
“We are looking at specific tax incentives to our industry because we are not manufacturers, but we buy lands and develop it so we need ‘ahead incentives’,” said Richard Albert I. Osmond, president and COO of Science Park of the Philippines, one of the largest ecozone developers in the country.
Osmond explained that “ahead incentives” means allowing them to apply the tax incentives due them during their project’s implementation phase to be able to pass on their savings to prospective locators and thereby making their price competitive against other countries.
For instance, Osmond said, ecozone developers have to pay the capital gains tax upon purchase of a property that they are going to develop into an economic zone. Philea would suggest that the tax incentives to be given should already apply to capital gains tax payment.
He stressed that ecozone developers should get “ahead” incentives because they have a different model than the manufacturers or locators in their ecozones.
“Manufacturers get orders, but we ecozone developers have different model, we are of different version. Before we could avail of the incentives, we already spent so much,” he said.
At present, ecozone developers enjoy the same tax perks as ecozone locators. These include VAT exemption, income tax holiday (ITH), and perpetual 5 percent tax on gross income earned (GIE) after the ITH, among others.
The problem is they could only avail of these incentives after Malacañang’s proclamation of their project which could take three or four years because of the very long permitting requirement like in the conversion of lots into factory sites.
While they have already invested their money for the ecozone development and tax payments, they are not assured if they can sell their lots immediately.
“What if we cannot sell immediately for say 100 hectares and you’re holding the VAT?” he said.
In addition, the ITH also takes effect from the start of commercial operations even if they have not sold any parcel of factory site yet. This makes the ITH useless because there is no company income yet on which the ITH could be applied.
If the proposed CITIRA Bill could craft “ahead” incentives to the industry, Osmond said, “We can be more competitive as a country because we can offer competitive prices and competitive operations cost.” He said that locating in a Philippine ecozone is not actually cheaper than other ASEAN countries.
The CITIRA bill aims to replace the current incentives of the PEZA, which administers the tax perks for ecozone locators and developers, with a staggered reduction in the corporate income tax from the current 30 percent to 20 percent by 2029.
But with the Department of Finance being steadfast in its position to overhaul the PEZA incentives regime with CITIRA Bill, Philea has close ranks with PEZA and the Department of Trade and Industry (DTI) for a compromise.
They are in favor of the DTI position for a longer 10-year transition period for PEZA enterprises to shift to the CIT incentive regime. The DOF, however, has been firm for a shorter 5-year transition.