The Department of Trade and Industry (DTI) has urged lawmakers to extend the sunset period of the proposed Corporate Income Tax and Incentives Rationalization Act (Citira) from the original proposal of five years to 10 years.

During the 2020 national budget briefing of the DTI at the House of Representatives, Trade Secretary Ramon Lopez said while the agency believes in time-bound incentives, the government should provide for a longer transition period to economic zone firms before they surrender their incentives.

“We want a longer transition period. On the existing ones, we take notice of our ecozone locators. For those existing [locators], we want a longer transition period and we’re discussing that with them [Department of Finance],” he said.

“We are now talking five to seven years transition but for me I want a 10-year period. The existing ones who benefited from the GIE [gross income earned], I want a 5 years’ transition for them while the new ones, we want to give them 10 years’ transition period…we want to give them longer years,” Lopez added.

With that sunset period, Lopez said the government will address the concerns of the ecozone locators on the passage of the proposed Citira, the new version of what the 17th Congress had dubbed the Trabaho bill, for Tax Reform for Attracting Better and High-quality Opportunities.

Locators will need to relinquish their incentives, including the 5-percent tax on GIE paid in lieu of all local and national taxes, if the Citira bill is applied to them. Under the proposal, they are given up to five years to surrender their tax perks.

For firms registered with the Peza, the Citira bill capped the period for enjoying income tax holiday at three years; and additional incentives at five years. Under the existing setup, economic zone firms are allowed to enjoy ITH for up to six years for pioneer activities and four years for nonpioneer activities. Upon the expiry of their ITH, they will perpetually pay 5-percent tax on GIE, be exempted from all local and national taxes, enjoy duty-free importation of raw materials, capital gear and spare parts, among others.

Earlier, the House Committee on Ways and Means Chairman Joey Salceda of Albay said the Citira is “nonnegotiable.” He also rejected the Peza-registered locators’ plea to exempt them from Citira’s coverage.

According to Salceda, the incentives provided under the Citira are the best compared to the Philippines’s neighbors. The proposed Citira is now pending for plenary deliberations.

At present, the Philippines has the highest CIT rate in Southeast Asia, while Singapore has the lowest at 17 percent. Manufacturing rivals Vietnam, Thailand and Indonesia apply CIT rates of 20 percent, 20 percent and 25 percent, respectively.

Under the Citira bill, the corporate tax rate of 30 percent will be reduced to 28 percent in 2021; to 26 percent in 2023; to 24 percent in 2025; to 22 percent in 2027; and to 20 percent in 2029 as part of government efforts to attract more investments to the Philippines.

The Department of Finance projects it can generate some 1.4 million jobs, mostly in small and medium enterprises, over the next decade and create a business environment conducive to inclusive growth.

Source: https://businessmirror.com.ph/2019/08/26/dti-ecozone-firms-need-10-year-transition/