Firms brace for Citira battle

File photo from http://citem.gov.ph shows garment workers in one of the PEZA locator companies.

IT’S government economists against industry groups in the Senate. Economic zone locators on Tuesday said they will insist on keeping their fiscal incentives even as their main backer in the government abandoned their case.

In discussions among themselves, locators firmed up a consensus to appeal before senators that they be allowed to retain their tax perks under the Corporate Income Tax and Incentives Rationalization Act (Citira) bill. They admitted this task will be challenging to do now that the Philippine Economic Zone Authority (Peza) Board, their regulator, had changed its mind and is backing the measure.

John D. Forbes, senior advisor of the American Chamber of Commerce of the Philippines, said locators are standing by their position that they should be exempted from the coverage of the Citira bill and be allowed to continue paying 5 percent on gross income earned (GIE) in lieu of all local and national taxes instead of corporate income tax (CIT).

“Peza locators still prefer [paying] GIE. The final provisions still need to be worked out so as to avoid displacement of investments and their employees,” Forbes said in a text message.

As such, Peza investors decided they will lobby their cause in the Senate even without support from any state official after their main backer Peza Director General Charito B. Plaza went on to toe the government’s line on tax reform in early October.

“We stand on our appeal to apply the grandfather principle as being requested by our industry partners. [We hope senators] realize that our end of business relies on their tenure in economic zones,” said Francisco S. Zaldarriaga, president of the Philippine Ecozones Association.

“We will continue our interface with the senators and hope that will see and empathize with our point of view,” the industry leader told the BusinessMirror.

The Joint Foreign Chambers of the Philippines earlier estimated more than 700,000 jobs will be lost if the Citira bill is passed into law as worded by the House of Representatives.

These job losses will come as casualties of the measure’s component on rationalization of incentives granted to firms operating in economic zones. Citira’s proponents, notably Finance Undersecretary Karl Kendrick Chua, disputed the job-loss figure and challenged the groups to substantiate it.

Economic zone locators, mostly multinationals, warned they will be compelled to relocate their operations to another Southeast Asian country if their tax perks, particularly the 5-percent tax on GIE paid in lieu of all local and national taxes, are stripped from them.

Longer sunset

That’s why government economists and senators are seeking ways to make them stay. One of the options they are considering is providing economic zone firms with a longer sunset period to give up all of incentives.

The House version—House Bill 4157—requires locators to give up their tax perks in two years, for those operating in Peza zones for more than 10 years; three years, for those between five years and 10 years; and five years, for those below five years.

Trade Secretary Ramon M. Lopez has been pushing for the extension of the sunset period to five years at the minimum and 10 years at the maximum. On the other hand, Plaza is proposing to give Peza firms up to 15 years to cushion the impact of the lifting of their incentives.

The Citira bill, which hurdled the House of Representatives in September, will reduce CIT rate to 20 percent by 2029—from 30 percent at present, the highest in the Southeast Asian region—and will rationalize tax perks of economic zone firms.

With no more opposition from within official ranks, the economic managers expect smooth sailing in the legislation of the Citira bill, removing also in the process the uncertainties spooking the country’s investment climate. These jitters led to a 12.71-percent decline in investments approved by the Peza last year, to P68.32 billion, from P78.27 billion, according to Philippine Statistics Authority (PSA) data.

The Citira bill was formerly named Trabaho, short for Tax Reform for Attracting Better and High-Quality Opportunities, that was approved by the House but rejected by the Senate.

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