Hike in ecozone locators’ GIE to 8% to yield P30B

Elijah Felice E. Rosales | BusinessMirror | July 2, 2019

At least P30 billion will be added to government coffers under the economic team’s plan to increase to 8 percent the tax on gross income paid by economic zone firms, Trade Secretary Ramon M. Lopez disclosed on Monday.

Lopez said the government could re-file a version of the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill with changes on the component of tax perks rationalization. One of the changes, he revealed, is raising the tax rate on gross income earned (GIE) to 8 percent, from 5 percent at present.

“We are talking of [a longer] transition [period] or possible grandfathering through increasing the GIE rate, [as] a GIE rate hike will have immediate revenue improvement,” Lopez said in an interview with reporters.

Under the original version of the measure, existing economic zone firms will be provided with up to five years to relinquish their incentives before shifting to paying corporate income tax (CIT). Locators, however, are opposed to this.

They said they might move out of the Philippines and relocate to another Southeast Asian economy if the government makes drastic changes in the incentives regime.

Transition

LOPEZ said current discussions between economic managers point to extending the transition period to 10 years, from five years, or allowing economic zone firms to keep paying tax on gross income but on a higher rate.

Once the GIE rate is raised to 8 percent, the government will generate an additional P30 billion to P40 billion yearly in tax collections. This will put annual revenue from GIE to as much as P100 billion, from some P60 billion at present.

“This is what will happen under this proposal. If we permit the grandfathering and locators agree to pay higher GIE, at least we will have additional and immediate revenue. Those guys will add about P30 billion to P40 billion [to] our revenue,” the trade chief explained.

However, Lopez said the government will most likely stick to its plan of reducing CIT to 20 percent by 2029, from 30 percent at present, in a move rejecting the business sector’s plea to cut corporate tax within a span of five years.

“The bottom line of the Trabaho bill is it has to be revenue-neutral. To me, the bigger part [of the measure] is the 30 percent to 20 percent reduction in CIT,” Lopez argued.

The Trabaho bill is the second package of the government’s comprehensive tax reform program aimed at rearranging the country’s fiscal structure.

It passed the House of Representative in the 17th Congress, but failed to get through the Senate. Lawmakers from the upper chamber feared its passage could result in losses in investments and, in the process, employment.

Economic zone firms earlier asked the government to allow them to keep paying tax on gross income instead of CIT, and suggested raising the GIE rate to 7 percent as a compromise.

However, finance officials insisted on pushing for drastic overhaul of the country’s corporate tax and incentives regime on the belief that investors will keep on coming in even if tax perks are rationalized. This created an uncertain investment environment that stalled expansion plans and scared off potential investors.

Investments registered with the Philippine Economic Zone Authority (Peza) slumped 40.97 percent to P140.24 billion, from P237.57 billion in 2019, which officials attributed to the uncertainties brought about by the Trabaho bill.

Source: https://businessmirror.com.ph/2019/07/02/hike-in-ecozone-locators-gie-to-8-to-yield-p30b/