This is an article repost.
A PRIORITY BILL seeking to rationalize the grant of fiscal incentives has been approved on third and final reading by the House of Representatives.
House Bill (HB) 4935, passed by legislators last Wednesday, addresses one of 23 pieces of legislation identified by the Aquino administration earlier this year as crucial.
The proposed Investment and Incentives Code of the Philippines, however, still has some way to go before it becomes law. The Senate version remains at the committee level and the government, for its part, has yet to finalize its position given differences between the Finance and trade departments.
“More than ever before, our potential to becoming a global economic force is becoming apparent. With all of the benefits and the clear-cut rules the Investments and Incentives Code could offer … now is the time to invest in the Philippines,” Tarlac Rep. Susan A. Yap (2nd district), one of the authors, said in a statement.
Batangas Rep Hermilando I. Mandanas (2nd district), chairman of the House ways and means committee, said: “We will wait for the Senate to we can go on [to convening a bicameral conference committee].”
Senator Ralph G. Recto, chairman of the upper chamber’s counterpart, said he was hoping that “a Senate version will be passed by end of the year.”
“We have had two hearings on the bill and am waiting for the House version. I have yet to see the Palace proposal,” he said in a text message.
The Finance and Trade departments’ differences mainly involve the trade-offs between the need to attract investors and revenues lost from the grant of generous perks.
Yesterday, Trade Undersecretary Cristino L. Panlilio said his department supported the House measure.
“[The bill is a] significant improvement because now there’s a timeline for the incentives whereas before, those registered in PEZA (Philippine Economic Zone Authority) are enjoying reduced tax rates in perpetuity,” he told BusinessWorld.
Finance officials were not immediately available for comment.
An official of a foreign business chamber welcomed the House move, saying the fiscal incentives bull would be “very important for investment, jobs and revenue.”
“We hope enactment of this legislation will take place before the end of the year,” said John D. Forbes, legislative committee chairman of the American Chamber of Commerce in the Philippines.
HB 4935 seeks to create a uniform policy on the grant of fiscal incentives to businesses. It will harmonize numerous incentive-giving laws such as the Omnibus Investments Code, special laws for economic zones, and other statutes.
Perks will be granted to enterprises depending on whether they are export-oriented or domestic, with the former receiving more.
Export enterprises, whether located inside or outside economic zones, can enjoy an income tax holiday (ITH) of six years from start of commercial operations.
After the ITH expires, they will be subject to a 5% tax on gross income earned (GIE) for 19 years in lieu of all national and local taxes except real property tax on land owned by private developers. They can also opt for a 50% corporate income tax reduction for 25 years.
To qualify, 70% of a business’ production should be for export.
HB 4935 makes a distinction between strategic and non-strategic domestic enterprises, with the former distinguished by large capital investments, generation of many jobs, use of high levels of technology and the “creation of value-added.”
Domestic firms, meanwhile, can choose from a four-year ITH or a 50% corporate income tax reduction for 15 years, to be followed by a 10% corporate income tax rate for 10 years if the business is located in 1st to 3rd class municipalities or 12 years if located in 4th to 6th class municipalities.
Domestic strategic enterprises as identified by the government under the annual Investments Priorities Plan can enjoy expanded benefits such as an ITH of eight years and a 50% corporate income tax cut for 17 years afterwards.
The bill, moreover, provides incentives for domestic enterprises setting up shop in Mindanao and the 30 poorest provinces in the country. They can get a six-year ITH then a 10% corporate income tax rate for 19 years. Businesses can also choose to avail of a 5% tax on GIE for 25 years, in lieu of all national and local taxes except real property tax.
The measure also provides other incentives such an Enhanced Net Operating Loss Carry-Over (NOLCO), value-added tax and duty refunds on capital equipment and raw material imports, accelerated depreciation, and double deduction for training and research expenses.
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By: N. M. Gonzales
Source: Business World, Aug. 18, 2011
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For more about the Rationalization of Fiscal Incentives, see Part IV: General Business Environment – Legislation.
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