Senator Imee R. Marcos, chairwoman of the Senate economic affairs committee, dared the country’s economic managers to name companies in export processing zones who are abusing tax privileges that should be removed under the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
Marcos raised the possibility that the alleged abuse was being made up to justify the so-called “rationalization” of such incentives as the low five percent tax on gross income earned (GIE).
“Have we contrived for ourselves an incentive bogeyman with which to bedevil each other and convolute our export incentives? Is the alleged abuse of the perpetual GIE of five percent nothing more than a self-inflicted nightmare, hardly a genuine threat?” Marcos asked during the Senate’s plenary session on Oct. 12.
Marcos cited the position of the Philippine Economic Zone Authority (PEZA) — the country’s prime investment promotions agency — that no such abuse has occurred since incentives are given not to companies but to products, new product development, new technology, and expansion for additional investment.
“Fundamental questions have been left unsettled” by the Department of Finance (DoF) and National Economic Development Authority (NEDA) to justify a removal of tax incentives for exporters, Marcos said.
“How much do we seek to raise by denying exporters these incentives? And how much more do we risk losing from the exodus of the investors, jobs and foreign currency as a result?” Marcos pointed out.
The DoF and NEDA claim that the removal of tax privileges for exporters would balance a revenue-reducing cut in corporate income tax (CIT) from the present 30 percent to 25 percent and eventually to 20 percent.
Marcos agrees with a cut in CIT to move closer to tax rates as low as 15 percent in neighboring countries but adds that the removal of tax incentives would discourage foreign investment and worsen joblessness in the country even after a vaccine for the Covid-19 pandemic is found.
“An additional deprivation of tax incentives would render our country costly and uncompetitive as an investment destination,” Marcos said.
The Philippines has lost some P19 billion in investments in the first seven months of 2020, from the P71.2 billion recorded in the same period last year, according to a PEZA performance report.
The value of Philippine exports also dwindled to $24.809 billion in January to June this year, a loss of $6.6 billion from the $31.367 billion recorded in the same period up to July last year.
Jobs lost in the country’s garments and electronics reached 60,379 in the second quarter of 2020 alone, with more layoffs expected as the continuing pandemic pressures companies to pay wages amid reduced production output, and to hold back further capital investments or even leave the Philippines for countries with better tax incentives, Marcos said.
Even the resilient business process outsourcing (BPO) sector has been forced to spend more on mandatory shuttle services, onsite accommodation for personnel, work-from-home arrangements, and health protocols to cope with the pandemic, Marcos added.
If lawmakers vote this week for a removal of tax incentives through the CREATE bill, Marcos insists it should only apply to new export companies.
A “grandfather clause” should be provided, so that existing export companies would still enjoy their incentives and not be pushed to relocate to other ASEAN countries that offer a better deal, Marcos explained.
Marcos stressed that the Philippines was already lagging behind Indonesia, Vietnam, and Thailand, which have attracted foreign investors relocating from China as global supply chains weakened due to the pandemic.