PEZA drops bid to exempt locators from corporate tax reform


Posted at Oct 09 2019 09:49 PM

MANILA - The Philippines' main investment promotion agency has dropped its demand to exempt the firms under it from a bill seeking to limit tax perks. 

After sparring with other government agencies for several months and opposing the Corporate Income Tax and Incentives Rationalization (CITIRA) Bill, the Philippine Economic Zone Authority (PEZA) said it now supports the tax reform measure. 

The CITIRA seeks to lower the corporate income tax rate to 20 percent from 30 percent and make up for the lost revenues by limiting the fiscal incentives given to select firms. 

PEZA director-general Charito Plaza and Trade Secretary Ramon Lopez said they met on Wednesday and reconciled their differences over the tax measure. 

“PEZA wants to end the agony of waiting and uncertainty caused by pending tax reform that has affected new investments and expansion projects of current PEZA-registered industries,” Plaza said in a statement. 

Lopez said the two agencies discussed refinements in certain provisions of the bill to address the serious concerns of the stakeholders, especially the existing PEZA locators.

"To have a smoother transition, current discussions are on the number of years in the sunset provision for existing locators, as well as extra years of income tax holiday and lower tax rates for new projects in strategic, high-technology industries with preference on locating in least developed areas," Lopez said. 

The PEZA proposes to hike the locators' tax on gross income earned (GIE) to 7 percent from 5 percent at present, instead of subjecting PEZA firms to the new corporate income tax regime. 

Plaza also proposes that PEZA locators be given a fixed 10-year or 15-year transition period, and continue to be allowed to import production-related materials duty-free.

An official of the American Chamber of Commerce in the Philippines, meanwhile, welcomed Plaza's statement, saying that the group is looking forward to the comments of the Trade and Finance departments on the proposals.

"Investors are waiting and eager to get the CITIRA issue resolved in an investor-friendly way and get back to promoting inbound foreign investment to support higher economic growth and job creation," said AmCham senior adviser John Forbes.

Several business groups had earlier warned that CITIRA could make the Philippines less competitive versus its neighbors. They also said the tax measure could lead to thousands of job losses as firms transfer their operations to other countries.