House open to longer phase-out period for tax perks

The House of Representatives is open to the proposed longer phase-out period for what it considers as unnecessary tax incentives being enjoyed by more than 3,000 corporations.

“If there is empirical basis for a longer sunset period, the House will consider, but this will mean slowing down spreading the corporate income tax reductions,” said Albay Rep. Joey Salceda, chairman of the ways and means committee.

He was commenting on the extended transition proposal of the Department of Trade and Industry (DTI) and the Philippine Economic Zone Authority (PEZA), which the two agencies have apparently presented to senators who are considering the Houseapproved Corporate Income Tax and Incentives Reform Act or CITIRA.

Under CITIRA, businesses with tax exemptions granted by PEZA and 12 other investment promotion agencies would continue enjoying these perks for two years to five years, after which they would be covered by the new income tax and incentives regime contained in the proposed law.

The DTI is proposing a sunset period of 10 years.

The House and the Department of Finance (DOF) are suggesting that tax incentives or exemptions be “performancebased, time-bound and transparent,” and corporate income tax be reduced from 30 percent

to 20 percent over 10 years starting next year.

Salceda and DOF Undersecretary Karl Chua have lamented that at present, corporations enjoying tax perks pay “from zero to five-percent income tax,” while small and medium enterprises (SMEs) are covered by the 30-percent rate.

They said prolonging the present disparate tax rates “will be unfair to the more than one million SMEs.”

The DTI and PEZA have opposed CITIRA. But in a surprise turnaround on Wednesday, DTI Secretary Ramon Lopez, who also heads the PEZA board, announced that the two agencies were now supporting the proposed law.

Lopez hinted that they have convinced senators to make changes in the Houseapproved CITIRA, prompting their change of heart.

He said there were “ongoing refinements (by the Senate) in certain provisions of the bill to address the serious concerns of the stakeholders, especially the existing PEZA locators, and a number of senators who are equally concerned on minimizing any possible repercussion on jobs if some firms leave the country.”

“To have a smoother transition, current discussions are on the number of years in the sunset provision for existing locators, as well as extra years of income tax holiday and lower tax rates for new projects in strategic, high-technology industries with preference on locating in least developed areas,” Lopez said.

Salceda earlier said he is against the DTI proposal for a longer transition to CITIRA.

“A longer transition period for current fiscal incentives will negate the positive effects of CITIRA in generating internal funds for new domestic investments while the economy stands to sustain more losses from protracted impacts of unnecessary incentives,” he said.

He even warned Lopez against “exporting” to the Senate his disagreement with the DOF on the proposed reforms on corporate income tax and incentives.

“Settle it with the President, since CITIRA is one of his legislative priorities,” he said.