WILL the Department of Finance (DOF) consider this? The Philippine Economic Zone Authority (Peza) is amenable to increasing the gross income earned (GIE) rate to 7 percent, from 5 percent, as long as tax incentives are maintained.
In a recent interview with reporters, Peza Director General Charito B. Plaza said she is
open to tweaking the GIE rate if it is the only way to maintain the incentive.
The GIE, which is paid by firms registered in economic zones in lieu of local and national taxes, will be removed under the government’s plan to rationalize tax perks, and several quarters have warned the government that could trigger an exodus of investors out of the country.
The twin planks—reduction of corporate income tax and rationalization of incentives, including GIE removal—are part of the second package of the tax-reform program, dubbed “Trabaho” bill in the House of Representatives,
with Trabaho standing for Tax Reform for Attrac-ting Better and High-Quality Opportunities.
Plaza said she can give in to a 2-percent increase in the GIE rate if this compromise is enough for the DOF. She explained this will improve the collection of local governments, and could, in turn, benefit provincial governments.
“We can increase [the GIE rate]. I’d like to increase it to 7 percent to expand the share of LGUs. Provincial governments do not have a share [in the GIE]. They complain because the GIE benefits only the local municipality or city where the economic zone is located,” Plaza said in a mix of English and Filipino.
She added locators are amenable to the increase. All they want, after all, is to keep the incentive in place. “Yes, they are amenable,” Plaza answered, when sought if stakeholders are open to the proposal.
“We have been consulting our locators. They are amenable to increase it to 7 percent, as long as they do not return to paying the CIT [corporate income tax] because that is prone to corruption,” the Peza chief added.
However, she believes the government has to study closely how long locators can pay GIE instead of CIT. She said the government has to ensure that capital is returned first before a locator is stripped of its tax perks.
“Let us study carefully what the government means when it says incentives have to be time-bound. We have to consider also their [locators] investment. The investor should have a return of investment [ROI] first. When they apply, for example, they have to tell us how many years will they have the ROI so that we can base it from there,” Plaza explained. If a locator, say, came up with a new product, introduced a new technology or expanded operations to the countryside, Plaza said its incentives should be extended. Priority investment areas, too, must be given special consideration, she added.
“This classification of industries, how much will be the ITH [income tax holiday], how many years will the ITH end or when do we add ITH if they introduce [a new product], it should be carefully evaluated and studied,” Plaza argued.
Firms locating in economic zones are given ITH for the first four to six years of their operations depending on the project. Once the ITH expires, they graduate to paying GIE.
Under the Trabaho bill, CIT will be gradually reduced from 30 percent now to 20 percent in year 2029. On the other hand, it will overhaul incentives granted to firms registered in economic zones. The Trabaho bill’s component on incentive restructuring does not sit well with locators, as they will be compelled to pay CIT by 2021. As a matter of mitigation, industry leaders said they will have to lay off thousands of workers if their tax perks are removed.