INVESTMENTS committed to the Philippine Economic Zone Authority took a nosedive in the first half of the year, and the only way to prevent these from falling further is to exempt the agency from the coverage of the second package of the tax-reform program, the Peza chief said.
Peza Director General Charito B. Plaza issued the statement after investment pledges to the agency declined by 55.86 percent from January to June. Plaza attributed this to the apprehension of investors about the second package of the Comprehensive Tax Reform Program (CTRP).
Potential investors are apparently holding on to their money, while existing locators are hesitant to expand operations, as some tax incentives might soon be removed.
Investments registered under the Peza declined to P53.07 billion from January to June, down by more than half, from P120.22 billion at the same period last year. This resonated across all industries, as commitments to manufacturing fell by 9.29 percent; information technology by 13.66 percent; economic zone development by 65.15 percent; and other sectors by nearly 100 percent.
Plaza said her agency is also pushing for the passage of the CTRP’s second package, but only if the Peza is exempted from its coverage. The proposed tax measure seeks to rationalize fiscal incentives, as well as lower corporate income tax. “We will be asking Congress for the retention of those incentives that are working. Why are we going to change the rules—or, in this case, the incentives—in the middle of the game when our investors are happy with these incentives?” the Peza chief said in a briefing on Monday.
She argued the agency has been utilizing the proposed criteria of the Department of Finance in giving out incentives long before it was indicated in the CTRP’s second package. Plaza said additional incentives in the form of income-tax holiday (ITH) are granted to locators that bring in new technology and products to the country. She pointed out this is in line with the DOF’s criteria that tax perks should be “performance-based, time-bound, transparent and targeted.”
In 2015 the Peza accounted for P66.6 billion of the P104.4 billion total tax incentives granted by investment promotion agencies, according to data from the DOF. Most of these tax perks were in the form of ITH and special income-tax rates.
Locators paid P89.35 billion in taxes that same year, mostly on withholding tax on compensation, duty payment on local sales and expanded withholding tax. Calculations by the Peza reported the government gained P22.75 billion in the process.
With the backing of local government executives, Plaza believes lawmakers will consider her appeal and tax incentives will be retained. The Union of Local Authorities of the Philippines Inc., the umbrella group of all leagues of local government units and officials, passed in May a resolution calling on President Duterte and Congress to exempt the Peza from the second tax-reform measure.
The resolution stated the Peza has to be exempted from the CTRP’s second package “in order to preserve its authority to administer incentives under its charter and sustain the momentum and effectiveness of its ongoing investment-promotion campaign.”