PEZA proposes raising tax on gross income earned to 7%
THE Philippine Economic Zone Authority (PEZA) has offered to increase the rate of its gross income earned (GIE) tax incentive to 7% from 5% and make it timebound in lieu of its removal under the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) Bill.
“I’d like to increase it to 7% to increase the share of the LGU [local government unit]. Provinces have been complaining that they have no share of the tax on economic zone locators, which goes only to cities or municipalities where the ecozone is located,” PEZA Director-General Charito B. Plaza told reporters on the sidelines of the 44th Philippine Business Conference and Expo last week.
She added that the investment promotion agency has evaluated the impact of a 7% GIE but declined to say what the findings were.
She was responding to a request for comment on former PEZA Chief Lilia B. de Lima’s proposed compromise of a higher the GIE instead of its removal.
Ms. De Lima made the proposal last week when she addressed the Makati Business Club’s general membership meeting where she also raised the need to appease LGUs and do away with their need to impose taxes on ecozone locators.
Under PEZA’s rules, an ecozone developer operator is exempt from paying all national internal revenue taxes and local government imposts, fees, licenses, or taxes and ordinances, in lieu of the payment of the 5% GIE of which 2% is allocated to host LGUs.
Ms. Plaza said an upward adjustment of the GIE is favored by PEZA locators.
“They are amenable to increase it to 7%. The corporate income tax (proposed in TRABAHO), is prone to corruption and will worsen the ease of doing business because they would have to deal with (the Bureau of Customs and the Bureau of Internal revenue),” Ms. Plaza said.
“Under GIE, it will be clear in the sales invoices this is their gross. And 5% of their gross will be the share of the government. So it’s very clear. No corruption,” she added.
PEZA’s latest proposal represents a softening in its stance particularly in Ms. Plaza’s willingness to make GIE timebound, for a period suitable to locators seeking to generate certain returns.
“Let us study carefully making incentives timebound. We have to consider also their investment. They require a return. When they apply for example, they have to tell us how many years they expect their investments to pay back, so that we base it from there. And then we add their incentive, their income tax holidays if they come up with new product, or introduce new technology, or expand to the countryside,” she added.
Ms. Plaza said PEZA is now in the process of classifying investment types based on expected payback periods.
“We have a Strategic Investment Priorities Plan (SIPP) which is now still being deliberated. So we start from there. The classification of industries, their ITH, how long they will enjoy it, should be carefully evaluated and studied,” she added.
Ms. Plaza said the need to retain the GIE upholds the separate treatment of exporters compared with domestic-oriented firms, which is ignored by the TRABAHO bill, the second round of tax reform legislation more generally known as Tax Reform for Acceleration and Inclusion (TRAIN).
“Under TRAIN 2, exporters domestic enterprises are treated the same. There should be a different regime of incentives for exporters and for domestic enterprises,” Ms. Plaza said.
“We still insist in the GIE for exporters, corporate income tax for domestic enterprises, and some domestic incentives, “she added.
The TRABAHO bill proposes to reduce the corporate income tax rate gradually to 20% by 2029 from 30% currently via a two percentage-point reduction every other year beginning 2021.