THE Department of Trade and Industry (DTI) expects investor confidence to return once the second tax reform package resolves some of the uncertainty generated by the initial round of tax legislation.
“This concern is only because of all these discussions… Many have taken a wait-and-see attitude,” Trade Secretary Ramon M. Lopez told reporters in Makati City when asked if he has any concerns over the impact of tax reform on foreign investment.
“I think all these concerns will be settled. Once the reforms are finalized, investor interest will continue because the fundamentals are there — growth of the economy, consumption spending, demographics, infrastructure — they’re all here,” he said.
Mr. Lopez noted that the most contentious issue for investors is the removal of the 5% gross income which is due to be eliminated in package 2.
PEZA’s current incentives system grants economic zone locators income tax holidays (ITH) that are valid for four to six years. This may be extended when companies meet targets related to earnings and the ratio of capital equipment to labor.
Upon the ITH expiry, the locator is expected to pay a 5% gross income earned (GIE) tax in lieu of all taxes, a privilege which does not expire.
The second package of the tax reform outlined in House Bill 7438 denies new investors this incentive. For companies operating in PEZA zones currently enjoying the perk, the bill provides for a transition period of five years before the incentive is eliminated.
Mr. Lopez said the government is seeking to improve the incentives regime by making them time-bound, more performance-based, and focused on selected strategic industries.
“Once those issues are clarified investor interest will return, possibly within the year,” he added. — Janina C. Lim

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