Economic zone firms are asking legislators to make drastic changes to the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, including the exclusion of locators from the measure’s provisions and removal of cap on the grant of fiscal incentives.

Philippine Ecozones Association President Francisco S. Zaldarriaga said locators are appealing for an exemption from the coverage of the Citira bill. The measure, they argued, should only be enforced on domestic investments, and not on firms registered with the Philippine Economic Zone Authority (Peza).

“At this point, our only appeal is to exempt Peza [firms] from these provisions and apply the bill to prospective domestic investments,” Zaldarriaga told the BusinessMirror.

Locators will need to relinquish their incentives, including the 5-percent tax on gross income earned (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 (ITH) 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.

The House ways and means panel chairman, Albay Rep. Joey Salceda, meanwhile, said the Citira is “nonnegotiable” and rejected the Peza-registered locators’ plea to exempt them from Citira’s coverage.

Seipi’s stand

Danilo C. Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi), batted for another modification in the Citira bill: remove the cap on the grant of incentives.

“Seipi’s position on Citira has not changed from our position with its predecessor Trabaho [Tax Reform for Attracting Better and High-Quality Opportunities]. We would prefer no cap on [the grant of] incentives,” Lachica said in a text message.

If members of the House of Representatives insist on their version of the Citira bill, then they should at least consider expediting the reduction of corporate income tax (CIT) and extending the transition period for the surrender of incentives, according to Florian Gottein, executive director of the European Chamber of Commerce of the Philippines (ECCP).

“While the ECCP appreciates the lowering of the CIT rate to help attract more investments, the proposal to reduce the CIT rate by two percentage points every 2 years is deemed too little, too slow. The ECCP urges the government to start reducing the CIT rate to 25 percent at the onset and an annual 1 [percentage] point reduction until the proposed 20 percent CIT rate is reached, which would bring the Philippines closer to the [regional] average,” Gottein said over the phone.

“As for the proposal on time-bound incentives, the [ECCP] is of the opinion that a longer sunset period is necessary to allow for a necessary transition,” he added.

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.

Voting 27 to 2, the House Committee on Ways and Means last Wednesday endorsed the Citira bill, filed by Albay Rep. Joey S. Salceda, for plenary deliberations. The measure is scheduled to be transmitted this week to the plenary for second and third reading approval.

Policy-makers are expediting deliberations on and, consequently, the approval of the Citira bill in accordance with President Duterte’s appeal in his fourth State of the Nation Address to ensure the passage of all remaining tax packages before his term ends in 2022.

Source: https://businessmirror.com.ph/2019/08/19/ecozone-firms-want-out-of-citira-bill/