SUBIC BAY FREEPORT—For all its intent to make the current tax system simpler, fairer and more efficient, the Tax Reform for Acceleration and Inclusion (TRAIN) Act is perceived here as a threat to the tax-free regime enjoyed under the law by business locators at the Subic Bay Freeport Zone.
Business and community leaders here the second package of the Train law, which seeks to cut corporate income tax but intends to rationalize tax incentives, is in conflict with Republic Act (RA) 7227, which created Subic and other free-port zones in the country.
“It will effectively repeal RA 7227,” Prof. Danny Piano, president of the Subic Bay Freeport Chamber of Commerce (SBFCC), said during a chamber event here the other week.
Piano warned the implementation of Train 2 might force some business locators here to move elsewhere. He added the most telling effect would be on the revenue shares given to eight local government units (LGUs) that are contiguous to the Subic Bay Freeport Zone, as these are sourced from the 5-percent taxes on the gross income earned (GIE) by Subic-registered companies.
Two percent of the 5-percent corporate taxes paid by locators here directly goes to LGUs, while the remaining 3 percent comprises the share given to the national government.
Piano said if the fiscal incentives to Subic investors were streamlined, it would effectively scrap the LGU shares that already stood at P147 million at the first semester of the year.
The Train law, or RA 10963, touted as the cornerstone of President Duterte’s poverty-alleviation initiative, sought to simplify the country’s tax system and strengthen the government’s tax-collection efficiency at the same time.
The first package, passed in December 2017, lowered the personal-income tax of most Filipinos and increased taxes on consumption, among others. The second package, which seeks to streamline fiscal incentives, is seen to make up for revenue losses arising from the first.
However, business leaders here said Subic, as a special economic zone, has been granted under RA 7227 with fiscal incentives like tax- and duty-free importation of raw materials, capital and equipment.
The law also mandated that no local or national taxes shall be imposed within the Subic Special Economic Zone, except for the 5-percent tax on GIE by companies.
“In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter,” RA 7227 also stated.
In her recent State of the Freeport Address, Subic Bay Metropolitan Authority (SBMA) Chairman and Administrator Wilma T. Eisma also acknowledged Train 2 to be among the tougher challenges that the Subic agency would be facing in the future, along with solid-waste management, smuggling, and safety and security.
Eisma promised to work something out with business locators here “to get something more advantageous for Subic under Train 2.”