The chairman of the Senate Committee on Ways and Means has vowed to protect information- technology and business-process management (IT-BPM) firms, as the industry faces an impending overhaul on tax incentives.
On the sidelines of the International Innovation Summit (IIS), Sen. Juan Edgardo M. Angara committed to defend IT-BPM companies and their interests, particularly on incentives. As committee chairman, he is in charge of the deliberations of the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho).
“We will protect the gains, [and] we will make sure that we do not send the wrong message to the investors. We are still in the process of consulting in the committee and finding the optimal incentives for them,” Angara assured.
Industry leaders oppose the proposed rationalization of tax perks under the Trabaho bill. They said they prefer that the status quo be retained, where they pay 5 percent of their gross income in lieu of local and national taxes.
However, they are willing to compromise with the government as long as they are given 10 years, or until 2029, to transition to the proposed fiscal regime under Trabaho. To this, Angara expressed his amenability.
“We are hearing now 10 years [of transition]. Some people are saying that is enough in terms of projections of firms,” he said.
“Ten years for the transition period instead of the perpetual GIE [gross income earned]? We are looking at that now and we are seeing if that is acceptable to both sides,” Angara added.
Further, Angara said he is in favor of retaining the one-stop-shop characteristic of the Philippine Economic Zone Authority to minimize red tape in tax collection. This is in line with the desire of investors to simplify the tax payment method.
“What we are hearing a lot is they [investors] want the local government taxes to be folded in [with their other taxes]. It can be very unpredictable: what is the treatment in one locality can differ in [another] locality in [terms of] rules,” the senator said.
“What they [investors] want is to keep it all in. Even the local governments are okay with it because they do not have to worry about collecting it, about going after firms,” he added.
Host municipalities are provided 2 percent share from the GIE paid by economic zone locators.
However, Angara admitted the government’s target to get the Trabaho bill enacted into law by December is difficult to do. Aside from the continuing debate between the government and investors, he said the country’s economic condition is not in perfect shape for drastic fiscal reforms.
“We are really studying it, and that is what we are doing. We do not want to rush it given the global economic situation. There is a lot of volatility, like I said the trade war between the United States and China. We have the currency situation, the reserve situation, the trade balance. All these things come into play. We [also] have the inflation,” Angara said.
The current version of the Trabaho bill will reduce gradually corporate income tax down to 20 percent in 2029 from 30 percent. On the other hand, it will reorganize incentives the government grants to economic zone firms.