7-year sunset period for ecozone perks likely

Economic zone locators will most likely end up with seven years to relinquish all of their fiscal incentives under the Senate version of the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, the country’s trade chief has disclosed.

Trade Secretary Ramon M. Lopez said senators are working on a magic number for the sunset period to be given to existing locators in giving up their incentives. In latest discussions among legislators, firms operating in economic zones will most likely end up with seven years before they surrender all of their tax perks as required by the Citira bill.

“There are talks among senators [to grant locators] seven years straight with no discrimination on the number of years they are registered here,” Lopez told the BusinessMirror.

Under this proposal, economic zone firms will be provided with seven years to drop all of their incentives, and this applies to everyone without regard to the number of years registered with the Philippine Economic Zone Authority (Peza).

This is totally different from the sunset period in the Citira bill version passed by the House of Representatives last September.

The House version—House Bill 4157—requires locators to give up their incentives in two years, for those operating in Peza zones for more than 10 years; three years, for those between five years and 10 years; and five years, for those below five years.

Lopez has been pushing for the extension of the sunset period to 10 years. On the other hand, Peza Director General Charito B. Plaza is asking lawmakers to give economic zone firms up to 15 years to cushion the impact of the lifting of tax perks.

“Senators want to remove that discrimination between newly registered companies and those in Peza zones for so long. They want it [sunset period] standardized at seven years. They said it might be complicated to manage different transitions,” Lopez said.

“I think even at the Senate, it won’t fly if the sunset period is too quick, as shown during the first hearing there on the Citira bill. Everybody’s just concerned about adjusting the sunset period to minimize job losses, especially in footloose industries,” he added.

Estimates by the Joint Foreign Chambers of the Philippines put job losses at above 700,000 if the Citira bill is passed into law, as a consequence of locators exiting the country en masse on removal of their incentives.

“That’s the concern, that five years could be too short of a transition for some firms, particularly for those involved in labor-intensive activities. Most of these firms are operating factories in other countries, and they can just transfer [their production] volume there,” the trade chief argued.

“As such, we are working on a number that would not be too short and not too long, and right now seven years might be that magic number,” he added.

Government economists and senators are working on the adjustments to be introduced to the Citira bill. These changes are part of the compromise reached by the Departments of Finance (DOF) and of Trade and Industry (DTI) with the Peza, resulting in Plaza—the Citira bill’s strongest critic from within government ranks—supporting the measure.

Last week saw Lopez—sitting as chairman—convening the Peza Board in a special meeting to stress the importance of getting the Citira bill passed in Congress.

With no more opposition from within official ranks, the trade chief is expecting smooth sailing in enacting the Citira bill, removing also in the process the uncertainties spooking the country’s investment climate. These uncertainties led to a 12.71-percent decline in investments approved by the Peza last year, to P68.32 billion from P78.27 billion, according to Philippine Statistics Authority data.

The Citira bill, which hurdled the House in September, will reduce corporate income tax rate to 20 percent by 2029, from 30 percent at present—the highest among Southeast Asian countries—and will rationalize tax perks granted to economic zone firms.

Source: https://businessmirror.com.ph/2019/10/16/7-year-sunset-period-for-ecozone-perks-likely/