Industry groups urge Congress to consider alternative PEZA perks

by Louella Desiderio (The Philippine Star) – Jul 20, 2019

MANILA, Philippines — With the Tax Reform for Attracting Better and Higher Quality Opportunities (TRABAHO) bill likely to be refiled at the 18th Congress, industry groups representing ecozone developers and locators urge legislators to consider alternative incentives for firms registered with the Philippine Economic Zone Authority (PEZA).

“We understand the desire of the government to raise revenues and strengthen our fiscal position and we believe there are ways of achieving this goal that do not jeopardize the jobs, investments and tax revenues that the country already has,” a collective statement issued by business groups led by the Philippine Ecozones Association (PHILEA), Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI), Information Technology and Business Process Association of the Philippines (IBPAP) and Confederation of Wearable Exporters of the Philippines said.

PHILEA president Francisco Zaldarriaga said while the groups see the need to raise revenues to support the government’s infrastructure program, they are of the view current incentives enjoyed by PEZA locators should be retained.

He said incentives given to PEZA locators have allowed the creation of 7.5 million direct and indirect jobs.

In addition, he said incentives have been crucial in attracting investments as neighbors like Vietnam and Thailand are also aggressively offering such to encourage firms to set up shop.

He said removing or diluting current incentives enjoyed by PEZA locators would also affect ease of doing business as such are needed not just to attract investments, but to keep them as well.

Under the TRABAHO bill which was approved on third reading by the House of Representatives in the previous Congress, the corporate income tax rate would gradually be reduced to 20 percent by 2029 from the current 30 percent, and changes would be made to the incentives regime including the removal of the five percent gross income earned (GIE) enjoyed by PEZA locators.

The five percent GIE paid by PEZA locators in lieu of all national and local taxes after they have used up their income tax holidays is considered a crucial incentive in deciding to invest in the country’s ecozones.

As concerns have been raised on the removal of the five percent GIE incentive, Trade Secretary Ramon Lopez said earlier this month the agency is looking to propose that a higher GIE rate of eight percent be applied for existing PEZA locators.

He said the Department of Trade and Industry is also looking at proposing a longer transition period of 10 years instead of the two to five years for firms to be allowed to enjoy the GIE incentive under the TRABAHO bill.

IBPAP president Rey Untal said his group is open to the higher GIE rate, but there has to be a ceiling as the acceptable GIE rate is unique for each of the sub-sectors.

“But personally and for the industry, we are pleased conversations are going on to enhance the TRABAHO bill provision especially as it relates to GIE and retaining the one-stop shop model of PEZA. These are very much welcome as far as our industry is concerned,” he said.