Foreign firms must be convinced to stay

THE Philippine Economic Zone Authority (PEZA) has yielded to what appears to be a firm administration stand on the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA).

PEZA Director General Charito B. Plaza had opposed CITIRA’s move to remove the 5 percent Gross Income Earned (GIE) tax that foreign companies operating in the nation’s various export zones had been paying in lieu of local and national taxes. The foreign firms had come to the Philippines over the years attracted by this and other incentives offered by the Philippine government.

With the impending CITIRA, many of the foreign firms have said they may move on to other countries like Vietnam. Director General Plaza had thus asked that PEZA locators be exempted from the CITIRA provision removing the 5 percent GIE tax.

Last week, Secretary of Trade and Industy Ramon Lopez, who is chairman of the PEZA board, called a meeting of the board and presided over it for the first time. He said the tax reform in the CITIRA bill has the mandate of the President himself and approved by the Cabinet.

There are ongoing refinements in certain provisions of the bill to meet the concerns of the foreign firms, he said, along with those of senators on possible repercussions on the jobs now held by so many Filipinos in the foreign firms. The refinements have to do with the number of years that the special 5 percent GIE tax rate is to be enjoyed by the firms. The bill also proposes lower tax rates for new projects in strategic high-technology industries.

Director General Plaza said PEZA has now aligned itself with the Department of Finance in support of CITIRA’s efforts to overhaul the tax incentive system for foreign firms, making it timebound, and with due attention and action on the serious concerns of the foreign firms.

“At the end of the day,” she said, “we will leave it to the wisdom of the senators and the President for a beautiful law.”

The bill was originally called TRAIN 2, as it was the second part of the administration’s Tax Reform for Acceleration and Inclusion Act. It may be recalled that the first law – TRAIN 1 – created new taxes, including a 12 tariff on diesel imports, which was a big factor in our inflation problem in 2018. It was renamed TRABAHO – for Tax Reform for Attracting Better and High-quality Opportunities – after that and finally to CITIRA.

CITIRA will now be filed in Congress and there is fear that it might lead to many job losses as many foreign firms have threatened to leave if the original 5 percent GIE tax that attracted them is now withdrawn by the government. Great efforts must now be exerted to convince the foreign firms and their foreign chambers to stay under the new provisions of the law.