The Department of Trade and Industry (DTI) is urging lawmakers to give economic zone (ecozone) locators 15 years to transition to the fiscal regime proposed under the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill.
In a speech at the Manufacturing Summit 2018 in Pasay City last week, Trade Secretary Ramon M. Lopez said the DTI has proposed to the Department of Finance (DOF) changes in the Trabaho bill. This includes extending the transition period to 15 years from five years for those availing the gross income earned (GIE).
Ecozone locators pay the 5-percent GIE in lieu of local and national taxes. Under the Trabaho bill, they are bound to lose this incentive in five years, or until 2024, if the measure is enacted into law before the year ends.
Lopez wants an “extension of the GIE transition period from five to 10 years, and 15, if possible.” He said this is to provide performing firms sufficient time to adjust to the tax regime under the Trabaho bill.
“What we are saying is that if [one of the criteria in giving out incentives is] performance-based, let’s try to extend or give it [longer transition period]. If you are 100 percent for exports, you employ, [you bring in] new investments, it is performance-based and, therefore, you deserve an extension of lower tax rates,” Lopez explained on the sidelines.
The DTI is appealing to allow firms in economic zones to continue utilizing the GIE based on performance, or permit them to do so at a higher rate, according to Lopez.
Semiconductor exporters last Thursday put forward their appeal to increase the GIE rate to 7 percent, as long as the government retains the tax perk. This was similarly proposed by Philippine Economic Zone Authority Director General Charito B. Plaza, as well as her predecessor Lilia B. de Lima.
The DTI is also seeking to provide reduced corporate income tax (CIT) based on performance to “footloose industries.” “Footloose industries” are economic activities that rely heavily on low labor cost or does not require high technology, but are needed as part of the supply and value chains and whose operations are sensitive to any cost increases.
The trade chief added the DTI is pushing for the inclusion of 100- percent additional deduction on the costs of participation in international trade fairs. Moreover, it wants the one-stop-shop mechanism to stay for economic and free port zones by providing the local government allocation during the CIT period.
The Trabaho bill will gradually reduce CIT down to 20 percent in 2029 from 30 percent, and overhaul incentives granted to investors. The measure is currently being deliberated in the Senate.