October 10, 2019
AFTER trading accusations and expressing differing views on the proposed rationalization of fiscal incentives, the Philippine Economic Zone Authority (PEZA) and the Department of Trade and Industry (DTI) on Wednesday reconciled and expressed support for the government’s second tax reform package.
In a message to reporters, Trade Secretary Ramon Lopez said he called a special PEZA board meeting on Wednesday to emphasize the importance of the tax and incentive reforms that the government was pushing.
PEZA Director General Charito Plaza had been very vocal in her opposition to the rationalization of fiscal incentives under House Bill 7982, or the “Corporate Income Tax and Incentive Reform Act” (Citira).
“We had to explain fully that there are ongoing refinements in certain provisions of the bill to address the serious concerns of the stakeholders, especially the existing PEZA locators, and some senators who are equally concerned on minimizing any possible repercussion on jobs if some firms leave the country,” Lopez said.
“To have a smoother transition, current discussions are on the number of years in the sunset provision for existing locators, as well as extra years of [the] ITH (income tax holiday) and lower tax rates for new projects in strategic, high-technology industries with preference on locating in least developed areas,” he added.
Lopez said he assured PEZA that the concerns of stakeholders would be addressed.
“With these adjustments, the PEZA board, together with its management, led by the director general, has officially aligned its position to give strong support to Citira and its parameters of having [a] longer, performance-based, time-bound, focused and transparent set of incentives,” the Trade chief said.
The “PEZA [director general] will no [longer] ask for status quo or exemption from Citira,” he added.
For her part, Plaza said she only agreed to cooperate in order to “fine-tune” Citira to consider the concerns of her agency and its industries.
“[The] DTI and PEZA reconciled their support to Citira with the openness of the DoF (Department of Finance) and DTI to fine-tunings that won’t remove PEZA’s ease of doing business or its one-stop shop, and in consideration of an enhanced GIE (gross income earned),” Plaza said in a text message.
“PEZA is 100-percent supportive of [Citira’s] objectives and goals, and wants to contribute [to] its enhancement and final version to ensure that it will remove the fear of its existing locators that it’s not a major tax revamp, but an enhanced one; [and] it will continuously attract more investors to the country and empower the -owned companies, the SMEs [small to mid-size enterprises], the farmers and every Filipino to become part in fully industrializing the country,” she said in a separate statement.
According to her, PEZA-registered enterprises could choose between a longer transition of five to 10 years, which can ensure existing investors of the grandfather rule, or may shift to the new incentive system under Citira.
Specifically, PEZA wants the increase of its current GIE tax regime from 5 percent to 7 percent to be considered in Citira, instead of the corporate income tax rate, in order to retain the one-stop-shop of PEZA for enhanced ease-of-doing-business in its ecozones.
Also, Plaza recommended the inclusion of several enhancements to Citira, subject to the Senate’s technical working group’s review and consideration.
These include a fixed 10- or 15-year transition period to be extended to locators on a per-project basis. This provides for a common sunset period — considering the usual term for the end of life of products and useful life of equipment — and continued enjoyment of tax and duty free importation of production-related materials by ecozone locators to put them on equal footing with free port-registered enterprises.
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