PEZA wants status quo on incentives

The Philippine Economic Zone Authority (PEZA) wants to keep the status quo on incentives being enjoyed by existing investors as it warned changes under the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill may make firms leave the country and move operations to neighbors in Southeast Asia.

“PEZA maintains its position that we have been advocating for the past three years, which is for status quo for five years of the current tax regime that are being enjoyed by our registered enterprises,” PEZA said in a position paper on the proposed CREATE.

CREATE, the repackaged version of the Corporate Income Tax and Incentives Rationalization Act or CITIRA, seeks to drastically cut the corporate income tax (CIT) rate to 25 percent by July from the current 30 percent to give relief to firms amid the ongoing coronavirus disease 2019 or COVID-19 pandemic.

CITIRA was aiming for a gradual reduction in CIT rate to 20 percent over a 10-year period from 30 percent.

Apart from the immediate cut in the CIT rate, CREATE also provides a longer transition period of up to nine years on the five percent tax on gross income earned paid by PEZA-registered firms in lieu of all national and local taxes.

The House of Representatives’ version of the CITIRA provides a transition period of three to five years, while the counterpart measure pending at the Senate seeks to give up to seven years.

PEZA said that apart from the CIT reduction and additional two years in the transition period, the CREATE Bill does not offer a concrete economic stimulus to affected companies.

“We fear that instead of assisting enterprises struggling from the effects of the community quarantine due to COVID-19, the CREATE bill in its present form may actually cause companies to close their operations in the country and transfer their operations in our ASEAN neighbors as what some enterprises did already,” PEZA said.

PEZA said the CREATE bill should first be implemented for domestic enterprises as they will benefit the most from the measure.

“Finally, the status quo shall afford stability and confidence among registered enterprises and sustain the reputation of the government that it honors and respects existing contracts and/or agreements,” PEZA added.

Meanwhile, the Information Technology-Business Process Association of the Philippines (IBPAP) said in a statement yesterday it supports the decision to immediately reduce the CIT rate to 25 percent, as well as the move to extend the tax deductibility of losses incurred during the taxable year 2020 (NOLCO) for an additional two years for all affected taxpayers under the CREATE bill.

“We believe both amendments will help cushion the impact of the pandemic and reinvigorate businesses,” IBPAP said.

While IBPAP supports the quick reduction in CIT and extension of NOLCO, the group wants Congress to consider some suggestions for the CREATE bill.

Among IBPAP’s recommendations is to give existing investors and locators a five-year deferment of any changes to current incentives to address uncertainties due to the health crisis and give them time to recoup losses.

“After this much-needed deferment, we can then proceed with the sunset provisions,” IBPAP said.

The group also recommended for government to offer a minimum of 10 years to enjoy incentives to attract new locators to set up operations in the country.

In addition, IBPAP said the Fiscal Incentives Review Board should have jurisdiction over very large investments or those amounting to $1 billion and above, while investment promotion agencies would continue to cover anything below the threshold.