House inclined to keep DoF’s incentive package

The Finance department has proposed a 15% tax on corporate income to replace varying incentive packages given to ecozone locators across the country. However, the proposal has been widely opposed by industry leaders.

The reduced rates, which will be in lieu of all national and local taxes, may be availed for 15 years and may be appealed for a 15-year extension.

Even the Philippine Economic Zone Authority (PEZA), one of the government’s key IPAs, objected to reforming the incentives menu, saying changing the rules mid-game could turn away investors.

But Marikina Rep. Romero Federico “Miro” S. Quimbo (2nd district), chairman of the House committee on ways and means, disagreed.

“In the long run, the long-term 15-year but reduced tax rate is more attractive. They will understand that,” Mr. Quimbo said in an interview last week on the sidelines of a House panel inquiry. “I think a more uniform, more determinable, and predictable regime on taxes is more attractive than having different and various tax regimes.”

The House committee has been discussing the bill to streamline fiscal incentives since last year, but has yet to draft a final version as the government’s Finance and Trade departments remain at loggerheads regarding the new tax perks package.

The Finance department’s proposed measure is currently being tackled by the panel. If approved, the new scheme will replace the varied perks of income tax holidays, a 5% special tax on gross income, and zero-rated value-added tax, among others.

At present, the tax perks are given from four to eight years, depending on the investment and the industry where it belongs.

Mr. Quimbo added that the uniform 15% rate will enable foreign firms to be able to offset the taxes they pay in their home country, as the tax perk is now based on income.

“Effectively, what it actually seeks out to do is we want to maintain taxes,” he said. “I’m sure they (foreign investors) would prefer to pay their taxes here than paid abroad because it gets reinvested in the country where they are operating.”

Foreign industry leaders earlier lamented that a 15-year incentive period may also be too short a guarantee for businesses to risk coming in the country.

Sought for comment, two local business leaders remained wary with the proposed measure, which they have earlier identified to be among the priority reforms they are seeking from government.

“There are some (bills) which we could initially support, but now, PEZA is raising concerns. PEZA, to us, has been a good-performing agency in government, so we want to listen to them,” Peter Angelo V. Perfecto, executive director of the Makati Business Club, said in an interview on the sidelines of a forum in Makati City.

“We are still struggling to become competitive in the region,” Mr. Perfecto added, citing the case of an electronics firm that set up its operations in Vietnam rather than here because of a more attractive set of tax perks. “That should already give cause to whatever final shape and form our rationalization would take.”

“Although this is one of the agenda items that are important, if the situation is as such that a consensus has not been reached and there’s a concern that it will make us less competitive in the region, then maybe we have to be a little more careful and study this further,” he said.

While also acknowledging concerns over the fiscal incentives bill that has delayed its passage, the Management Association of the Philippines (MAP) said it will still continue supporting the plan to rationalize tax perks.

“We’re still pushing, we’re still offering ourselves as experts,” MAP President Gregorio S. Navarro said in a separate interview. “We are still hopeful that it will be done within the next year before the elections so that the reforms would come in.”

John D. Forbes, senior advisor of the American Chamber of Commerce of the Philippines, also said via text: “We think the Congress should very carefully consider potential negative consequences of making 15 for 15 as the only income tax incentive for new investors. There are other ways to rationalize fiscal incentives without sacrificing competitiveness and risking future FDI (foreign direct investment) inflows.”

Mr. Quimbo is eyeing to secure committee approval on the bill by June, before Congress adjourns its second regular session.

“We are open to any suggestions, we will conduct more hearings on it but with the end goal that we want to make this more uniform,” Mr. Quimbo said.