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House panel mulls local tax shield for firms in line with TRAIN 2

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The second tax reform package was supposed to be revenue-neutral, with foregone revenues from a cut in corporate income tax rates covered by a corresponding removal of fiscal incentives deemed redundant.

By Elijah Joseph C. Tubayan
Reporter

THE HOUSE committee on ways and means will look into how businesses in the Philippines can be shielded from dealing with varying tax schemes among local government units while still rationalizing fiscal incentives under the second package of the tax reform program.

The committee’s chairperson, Quirino Rep. Dakila Carlo E. Cua, said the preferential 5% gross income earned (GIE) tax holiday is attractive to investors not only since it is enjoyed in perpetuity, but because it simplifies the process of paying taxes since it is in lieu of all national and local taxes.

“That’s their way of providing protection from the LGUs, which have different tax regimes. Some may be corrupt, some may not. But iba-iba ang treatment sa investors (treatment toward investors varies),” Mr. Cua said yesterday during the second deliberation for the corporate income tax and incentives reform bill, or the second package of the comprehensive tax reform program.

“So I don’t think it’s necessarily all about the 5% GIE. It’s the resulting effect that they’re somewhat protected from LGU concerns,” he added.

Mr. Cua’s proposal with the Department of Finance (DoF) is to replace the 5% GIE in lieu of all local taxes with a reduced 15% corporate income tax (CIT) rate on net income as part of the rationalization of fiscal incentives.




The Local Government Code of 1991 grants fiscal autonomy to LGUs to impose local taxes such as real property, and business taxes.

DoF argues that the current practice of paying taxes “in lieu of local taxes” is unfair to LGUs as it runs contrary to the government’s strategy of empowering them to enhance countryside development.

Mr. Cua said his panel will not “clip the powers of LGUs,” but supports a unified regime where LGUs can impose uniform taxes in different investment areas. “That’s something we need to talk about and look into as we move forward to our discussions.”

Under the tax reform proposal, rationalizing fiscal incentives will give room for the gradual cutting of corporate income taxes from the current 30% to 20% (as proposed by Mr. Cua), or to 25% conditional on collecting P130 billion from streamlining tax perks (as proposed by the DoF).

To maintain non-intervention of LGUs, Board of Investments (BoI) Governor Lucita P. Reyes proposed that a certain percent share from the reduced CIT rate be automatically earmarked to LGUs, “rather than going through the system, because we know that it takes a lot of time before the share of LGUs (is) downloaded,” adding that it would help LGUs program the funds for their projects in a given year.

PEZA Deputy Director General Mary Harriet O. Abordo pointed out that firms catering to the export market “will go to a location where there is ease of doing business and lower cost of doing business because their products and services have to compete in the global market”

“If your honors will permit… (let the) continued flow of investments generated through the PEZA law, which is an excellent piece of legislation, not be interrupted,” she added.

Ms. Abordo noted that their locators are particular on the ease of paying taxes in the current incentives scheme.

PEZA noted that for every P1 tax break given to its locators, P11 is returned to the economy. But PEZA also said it had no study yet on the impact to the sector in shifting away from the 5% GIE tax to the proposed 15% reduced CIT incentive.

Semiconductor and Electronics Industries in the Philippines Foundation, Inc.’s Ma. Rojarlyn Gaid shared the same concern that the current tax holiday shields them from “unstandardized practices” of LGUs.

“This is a reality and city codes vary, unless something can be done about that. We can look at changing the criteria in local business taxes because we have companies in different cities,” she said.

Celeste Ilagan of the Philippine Association of Multinational Companies Regional Headquarters, Inc. (PAMURI) also asked the House panel to retain the exemption from LGU taxes, as they are “experiencing so much uncertainty.”

“There are many LGUs that impose an unfair level of taxes, where if you do not have increased earnings from previous years, they have an authority to impose tax on you based on the imagined growth of your business. These are very real things to create uncertainties for business.”

IT and Business Process Association of the Philippines (IBPAP) President Rey Untal also seeks to maintain the status quo regime on tax incentives as this would allow them to shift to higher-value services, since they face stiff competition with India which is already 12-14% less expensive for firms to operate.

Makati Business Club (MBC) Executive Director Francisco Alcuaz, Jr. said that they want the corporate income tax rate of 20%, but the rationalization of incentives may face legal snags as they are granted through contracts.

He added that they are also concerned about the proposal to give the Bureau of Internal Revenue prosecutorial powers. “We share the frustration of everyone with the slow (pace) of tax evasion cases. We believe such a provision is risky and may raise legal questions.”

PAMURI, IBPAP, and MBC also seek a longer transition period of about 10 years before moving to the regular CIT, while the BoI wants a 15- to 20-year sunset period.

This compares to the DoF and Mr. Cua’s proposal of a maximum of five years.

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