DTI, DOF wranglings hold up RFI passage

By Catherine N. Pillas & Jovee Marie N. dela Cruz

The Rationalization of Fiscal Incentives (RFI) bill is not progressing, thanks to the gaping difference in the positions of the Department of Trade and Industry (DTI) and the Department of Finance (DOF).

Instead of making progress and coming to an agreement on contentious points every time they meet, the two agencies are actually regressing, with the once touted “80-percent to 90-percent” consolidated bill returning to a mere 35-percent consolidated, House Ways and Means Committee Chairman, Rep. Romero  S. Quimbo noted during the eighth committee hearing on the proposed measure.

Trade Undersecretary Adrian S. Cristobal Jr. during the hearing bared four contentious issues:

1. Implementation of a uniform incentive package for all economic zones consisting of a four-year income-tax holiday (ITH), after which a choice of either a 5-percent reduced tax on gross income earned (GIE) or a 15-percent corporate income tax (CIT) for 11 years (total of 15 years).
2. Renewability of either the 5-percent GIE or the 15-percent CIT for 15 years, upon review after 15 years. This incentive is on top of the ITH and GIE/CIT combination, totaling to 30 years of incentives availment.   While the DTI is in favor of the time-bound perks, the authority to renew or terminate incentives should lie with the investment-promotion agency boards.
3. Implementation of any change in the incentive package, either for export-oriented enterprises in the Philippine Economic Zone Authority (Peza) or the Board of Investments (BOI), should be prospective.
4. Existing locators who enjoy the present package should be given an option to migrate to the new scheme.

Cristobal said keeping the incentive packages attractive is significant, now that other competing Asean member-nations are offering better packages.

Vietnam, for instance, offered Samsung a 30-year ITH for the electronics giant to locate there. Indonesia, according to Peza, just doubled its ITH period from 10 years to 20 years.

The DOF, however, remained firm in its opposition, specifically on the second issue.

No walk in the park

Finance Undersecretary Jeremias N. Paul Jr. said the points of contention raised by the DTI has “changed the complexion” of the discussions.

Specifically, the DOF prefers the renewability of the 5-percent GIE or the 15-percent CIT for 15 years, to be availed of only once, or simply a cap of 30 years on the enjoyment of incentives.  An exception can be made only for Peza locators, Paul said.

Moreover, the DOF is averse to the DTI’s proposal for a uniform incentive package that includes the four-year ITH plus 5-percent GIE/15-percent CIT for other free ports and ecozones.

This would mean that existing ecozones that do not offer an ITH will be given that privilege, thus, adding to the revenue leak.

“From the very beginning we have been against the ITH because we view it as the most ineffective type of incentive…compared to this, the sin tax is a walk in the park,” Paul reasoned.

The ITH can only be an exception to Peza, he added. “We’re not throwing in the towel.”

The DOF, however, conceded to the repealing of select existing laws and is willing to revisit some 14 laws that mandate the giving of incentives to certain sectors.

Significant to services

The DTI also wants to make sure the ITH will be given to information technology and business-process outsourcing (IT-BPM) locators in Peza and other ecozones.

“The services [sector] is the fastest-growing sector, and it benefits from the ITH,” Cristobal added.

For the BOI, considering it mostly caters to industries that waste their ITH in the first few years of operation, it is agreeable to the 15-percent CIT for 15 years.

The harmonization strategy to offer the four-year ITH plus 5-percent GIE/15-percent CIT must be done to level the playing field among ecozones.

“Other ecozones feel that they must be given the same kind of package and give them a fair chance to attract investors,” Cristobal said, justifying the harmonization move.

The House Ways and Means Committee withheld the approval of the bill and is summoning Finance Secretary Cesar V. Purisima so he can present his agency’s comprehensive tax-reform proposal.

Quimbo said the conflicting views of the DTI and DOF are affecting the passage of the bill at the lower chamber.

The RFI is one of the priority bills of the Palace and the 16th Congress.

“Before, they [DTI and DOF] said that they are 80-percent done with the drafting of their unified version of RFI. But now [as I see] they’re now down to 35 percent.  It’s a step backward,” Quimbo said. “What we’ve seen today is they are still far off from the finish line.”

According to Quimbo, the passage of the RFI is now “on the hands of the DOF and DTI.”

“[Their unified position is important because] in this case, it would be very difficult to just hammer out and impose a fiscal incentives rationalization bill without the specific inputs of both the DOF and the DTI. The DTI has all the road maps of each and every important sector – the jewelry sector, the housing sector, BPO sector—they have the road  maps. We cannot pretend…we cannot just disregard those things. The DOF, on the other hand, has specific issues on where incentives should be given and where they are most effective; so it’s not wise,” he said.

Quimbo, however, expressed confidence that the DOF and DTI will be able to draft one version of the measure.

“The positive thing that I see from it is the fact that I see them continuously engaging to come up with a unified and acceptable fiscal incentives bill that will both help them carry out their respective mandates, meaning the DOF and the DTI. I don’t think it’s a hopeless case. I think they just need to sit down more and see where the common issues are, so that they have more in common than differences,” he said.

The RFI bill has been facing strong opposition from business groups due to its provisions, particularly the lifting of the tax- and duty-free incentives enjoyed by several industries.

Quimbo earlier said the government is losing billions of pesos because of these incentives.

“We lost P148 billion in 2013 on fiscal incentives but [with the passage of the RFI bill] we want to make sure that we will only remove incentives in those industries that don’t deserve it.  .  .however, those who deserve it–meaning those that generate jobs like manufacturing, as well as export-oriented (industries)—we will not only protect them but we will, in fact, even increase their incentives so that we can make them competitive,” the lawmaker said.

Source: www.businessmirror.com.ph