BICAMERAL debate on the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA) will have to contend with two issues — the “sunset period” for weaning companies away from incentives, and the removal of taxation based on Gross Income Earned (GIE), a key legislator said.
In an economic briefing at the Palace Wednesday, House Committee on Ways and Means Chair and CITIRA’s principal author Jose Ma. Clemente S. Salceda, of the second district of Albay, said the Senate and House will need to resolve their differences on how long to phase out the incentives offered in the bill.
The House version of the CITIRA legislation proposes a two-to-five-year phaseout period, while the Senate is thought to favor five to seven years.
Mr. Salceda said he backs a phaseout scheme which favors locators who set up outside Metro Manila and rewards those who uproot and relocate.
“Ang signal ko po kasi, tama na ang Metro Manila, pumunta na kayo sa Albay; Tama na Metro Manila, punta kayo ng Cebu; Tama na Metro Manila, punta kayo ng Baguio (The signal I want to send to investors is to quit Metro Manila and reward those who set up in Albay, or Baguio, or Cebu).”
He added that he favors a five-year phaseout period for locators in Metro Manila and 10 elsewhere.
“In fact, if you read the document very well, there is huge benefit to them if they relocate,” Mr. Salceda said.
The House of Representatives on Friday last week approved on third and final reading its CITIRA legislation, House Bill No. 4157. The bill, which will reduce the corporate income tax rate to 20% by 2029 from 30% currently and overhaul fiscal incentives, forms part of the administration’s comprehensive tax reform program (CTRP).
On Tuesday, Senate Majority Leader Juan Miguel F. Zubiri said the bill will go through a “fine-toothed comb” in the Senate.
He also said the Senate plans to increase the GIE rate to 7% from the current 5%.
Economic zone locators are currently offered an incentive rate of 5% tax on GIE.
Mr. Salceda opposes GIE because of the potential for abusing transfer pricing to minimize tax.
Transfer pricing is practiced by companies that transact with affiliates. Global accounting standards require that such intra-group purchases reflect a fair, commercial, “arms-length” price. A parent company’s sales to a foreign affiliate could be priced in such a manner as to cause the affiliate to lose money or minimize earnings, thereby evading tax. Multinationals can also arrange to make the most money in low-tax jurisdictions while minimizing profit in high-tax locations.
Asked to comment on GIE at the Palace briefing, Mr. Salceda said: “They want the GIE. Based on our studies, the Gross Income Earn is the mother-of-two hundred ninety-seven billion pesos in… transfer pricing anomalies.”
In a statement Tuesday, Mr. Salceda said: “Removing the GIE is an essential and inseparable part of CITIRA, as it will improve the effectivity of the deductions-based incentives that encourage job creation, infrastructure, research and development and workers’ training, and use of domestic products. Removing the GIE also corrects abusive transfer pricing, improves fairness especially for service-oriented firms, and simplifies tax administration.”
On whether he is open to exempting locators of the Philippine Economic Zone Authority (PEZA) from CITIRA, Mr. Salceda said at the briefing: “It goes against the (principle of) ‘what’s good for the gander should be good for the goose.’ There is no circumstance or condition that makes PEZA locators sui generis (one of a kind),” he said.
CITIRA ”is meant for everyone. If you do this thing whether you’re a PEZA locator, an AFAB (Authority of the Freeport Area of Bataan) locator, an APEC locator, or you’re in the barrios, you get the same menu and you get the menu based on your performance,” he added.
On the prospects of PEZA locators leaving the country because of the measure, he said: “Once they read the law, they will stay… (they are only exhibiting) ideological resistance to change; but it’s always change for the better, for a more predictable (system) — If they are threatened, how come some of them keep registering (for investments)?”
Mr. Salceda also allayed concerns of job losses once CITIRA becomes law, although he said the government maintains a structural adjustment fund of P1 billion for displaced workers.
“I don’t even think we need it. That presupposes jobs losses,” he said.
Finance Undersecretary Karl Kendrick T. Chua said: “What we strongly believe is that there is no threat of job destruction or loss. Iyong mga nagsasabi po na aalis po sila (for those threatening to leave), I challenge them — show me the names and the numbers. Until today po, wala pong nabibigay (No one has been able to name the companies that are leaving).” — Arjay L. Balinbin