by Catherine Pillas –
American businessmen in the country want the government to give investors more options in availing themselves of fiscal perks for qualified projects, instead of merely replacing the current incentives scheme.
For instance, the American Chamber of Commerce of the Philippines (AmCham) said the reduced 15-percent corporate income tax (CIT) for 15 years, as proposed by the Department of Trade and Industry (DTI) in lieu of the current incentives program, should be considered as an additional package to be offered by investment-promotion agencies (IPAs).
“The option has come up for ‘15 for 15’; that should be in addition to what we already have,” said John Forbes, senior adviser to AmCham.
The call comes amid efforts of the Department of Finance (DOF) to streamline fiscal perks given by major IPAs, such as the Board of Investments (BOI) and the Philippine Economic Zone Authority (Peza).
The DTI has been struggling to keep the investment climate competitive by maintaining various
fiscal and nonfiscal perks, while the DOF is making sure revenue collection will not continue to suffer.
The DTI, however, recently buckled. It has announced a proposal to do away with the income-tax holiday (ITH) for BOI-registered firms, with the reduced CIT—from the normal 30 percent to 15 percent—for 15 years taking its place.
The BOI grants ITH of up to eight years. A registered pioneer enterprise with pioneer incentives is entitled to six years ITH and additional two-year bonus ITH. A nonpioneer enterprise is allowed up to four-year ITH and additional two-year bonus. For Peza firms, the existing scheme may be replaced with either of these two incentive packages: one inclusive of an ITH, and another without an ITH.
For the package that includes an ITH, the period would be capped from the existing six to eight years to just four, but will be paired with either a 5-percent tax on gross income earned (GIE), except value-added tax (VAT) and real-property tax (RPT) for 11 years, or 15-percent reduced CIT in lieu of local and national taxes, except VAT and RPT for 11 years.
If the ITH is not granted, registered firms may either be allowed to pay a 5-percent tax on GIE in lieu of local and national taxes,
except VAT and RPT for 15 years, or 15-percent reduced CIT in lieu of local and national taxes, except VAT and RPT for 15 years.
Given the capped incentives, Trade Secretary Gregory L. Domingo stood firm that the “15 for 15” option, renewable by the Peza board, will be more attractive to foreign investors and will translate to bigger revenue savings than the existing ITH structure.
“On the surface, the ITH looks attractive because of the [tax] exemptions. But that will only be for four years and you would then still be ramping up your production. And if that’s the case, what level of income will you be protecting? Incomes come in later and that’s where the 15-percent income tax will prove to be beneficial,” Domingo said.
The AmCham previously said it prefers the reduced CIT of 15 for 15 over the limited ITH since most businesses hardly profit in the first years of operation and essentially waste tax holiday. However, it is now suggesting that the reduced CIT be made an option in addition to the current scheme. “Cutting the ITH is essentially capping job creation; [the government] should offer ‘15 for 15’ but keep the status quo, and see what people will choose,” Forbes said.
The AmCham senior adviser explained that given the disadvantages the Philippine business environment is already saddled with, such as high labor and electricity costs, luring investors in the country is already an uphill climb. Cutting the incentives may aggravate the situation, he said. “The point of the finance department is to have more revenue, but without investments, how can you have revenue?” Forbes said.
Forbes said streamlining incentives by limiting the mandatory list of permanent perks given to various industries, as enshrined in over 50 laws, would be a better move for the DOF, and yet, it has focused on dismantling the current incentive structure of IPAs.
The bills operationalizing the change in fiscal and nonfiscal perks have been languishing at the committee level in both the Senate and House of Representatives, due to the continued disagreement between the DOF and DTI. With the 2016 elections fast approaching and a consolidated bill yet to take form, it would seem the measure is already dead in the water.
This may be welcome news, however, for Peza, which has long maintained that the incentive packages should not be changed in any shape or form, or the country will risk losing the confidence of existing and incoming investors. In a previous interview, Japanese Chaber of Commerce Vice President Nobuo Fujii also thumbed down the incentives-rationalization move, foreseeing less investments in the future from Japanese firms.
Comment here