MANILA - The proposed reforms to the Philippines' tax incentives system should have a longer transition period to "minimize" job losses, the head of the country's trade department reiterated on Tuesday.
Under the Corporate Income Tax and Incentives Rationalization Act (CITIRA) passed by the House of Representatives, there will be a 2- to 5-year limit on tax perks depending on how long a firm has been enjoying incentives.
While the House bill is backed by the finance department, Trade Secretary Ramon Lopez proposes a transition period of up to 10 years for the new tax regime.
Lopez said this was needed for industries which could easily relocate their operations to other countries.
Without a longer transition period, Lopez warned, jobs could be lost as these businesses shut down.
"Definitely if we adopt the bill as it is currently structured there is the potential risk, and that is the reason why we are suggesting a softer landing by extending the transition period," Lopez told the Senate
The Trade chief said that while job losses from CITIRA could not be completely avoided, they "will be drastically minimized" through the longer transition period.
Lopez also proposed to hike the tax on gross income earned (GIE) to 7 percent from 5 percent at present. The GIE tax is an incentive that is paid in lieu of all national and local taxes.
The Trade and Finance Departments are already working on the possible changes, Lopez told the Senate tax-writing committee.
Lopez's proposal was backed by an alliance of foreign business groups and exporters.
Finance Undersecretary Karl Chua, who was present at the Senate hearing, meanwhile rejected suggestions to exempt businesses granted incentives by the Philippine Economic Zone Authority (PEZA) from being covered by CITIRA.
PEZA Director General Charito Plaza has called for the exemption saying that without the tax perks, the Philippines would become less attractive to foreign investors.
Export-oriented and business process outsourcing firms which currently enjoy the incentives may leave the country, she said.
But Chua said PEZA incentives made up the bulk of revenues lost due to tax perks. He said that in 2017, PEZA incentives accounted for P346 billion of the P441 billion worth of tax perks that the government gave away.
Chua also insisted that the gross income earned tax be limited instead of being granted in perpetuity.
"The CITIRA or the House bill already has a provision that grants incentives between 5 to 19 years, and this has been stretched already from the original DOF proposal because of the evidence and the concern that we want to give to certain priority sectors," Chua said.
Exporters and BPOs have opposed the rationalization of incentives saying it may lead firms to shut down or abandon expansion plans.
The government meanwhile has said that businesses will get "superior" incentives from the tax reform bill.
The tax bill, which was certified as urgent by President Rodrigo Duterte, seeks to lower corporate income taxes to 20 percent from 30 percent.
- With a report from Warren De Guzman, ABS-CBN News