THE DEPARTMENT of Finance (DoF) said the Philippine Economic Zone Authority’s (PEZA) objections to the reforms outlined in the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill mean the agency is defying a presidential directive.
“Rather than make an 11th hour appeal to President Duterte to reconsider his own directive supporting corporate income tax (CIT) and fiscal incentives reform that will benefit more than 99% of businesses, the Philippine Economic Zone Authority (PEZA) should explain to Filipino taxpayers why it insists on subsidizing at their expense the multibillion-peso dividends and profits of large corporations that do not actually need such perks,” the DoF said in a statement on Tuesday.
PEZA has been vocal in its opposition to the TRABAHO bill. It warned of potential job losses and closures by locators.
“PEZA (Director General Charito B. Plaza) is free to talk to the President. But the President already approved this comprehensive tax reform program as early as January 2018 in a Cabinet meeting and reiterated this in his State-of-the-Nation Address (SONA). We should not stand in the way of a presidential directive,” Finance Assistant Secretary Antonio Joselito G. Lambino II was quoted as saying.
Ms. Plaza has said that she will elevate her concerns to President Rodrigo R. Duterte as she seeks to maintain the status quo on the fiscal incentives regime for PEZA locators.
Finance Undersecretary Karl Kendrick T. Chua said earlier consultations had incorporated the concerns of PEZA and other stakeholders.
“In fact, we took into consideration PEZA’s comments, which was why several changes were made to the original Package 2 proposal. During our consultations with Director General Plaza, she even agreed to the principles of Package 2 — that it be performance-based, targeted, time-bound and transparent,” said Mr. Chua.
Ms. Plaza has yet to respond after being asked for comment.
The bill, which is the second tax package after the Tax Reform for Acceleration and Inclusion (TRAIN) law, seeks to cut the corporate income tax rate gradually to 20% by 2029 via a two-percentage-point reduction every other year starting 2021.
Fiscal incentives will be limited to industries identified in the Strategic Investments Priority Plan (SIPP) and will make them subject to performance benchmarks. Incentives will be harmonized into a single menu, including: a three-year income tax holiday, after which, a special net income tax rate of 17% will be charged starting 2021; deductions for labor, research and development, training, and infrastructure development expenses; and some customs duties exemptions for up to five years. Following this, companies will be taxed under the prevailing corporate tax scheme.
Currently, income tax holidays can run as long as nine years, with locators enjoying a 5% tax on gross income earned in lieu of all other taxes enjoyed in perpetuity.
The TRABAHO bill was approved on final reading at the House of Representatives in September. The counterpart bill in the Senate is pending at the committee level.
Mr. Chua said that the bill will keep the one-stop-shop function of PEZA, addressing firms’ request to avoid having to do business with business local government units. He added that more jobs will actually be created as 90,000 small and medium enterprises will benefit from lower taxes, against about 1,000 larger corporations that will have their incentives rationalized.
Mr. Lambino said maintaining the status quo is a band-aid solution to cover up the structural defects of the business environment, which the government has been doing for over 50 years and “has not encouraged export diversification and innovation.”
“Instead, the outcomes are corporate geese fattened from incentives granted forever, declining export competitiveness, and foreign direct investment (FDI) inflows that remain lackluster if compared to our neighbors,” he said.
The new tax structure “favors investors that support our development objectives, which are: to create more and better jobs, promote research and development, encourage innovation, stimulate domestic industries, promote countryside development, and diversify our product base to higher-value exports.”
Earlier, the DoF said that in 2015, the government gave away P86.3 billion worth of income tax incentives to firms that paid out a total of P141.8 billion combined in dividends to their respective shareholders. — Elijah Joseph C. Tubayan
