Terms on performance, timelines limit ‘forever’ in Peza perks–Plaza
Take that, Salceda. The Philippine Economic Zone Authority (Peza) on Tuesday said its grant of fiscal incentives are regulated by terms and conditions that require firms to perpetually expand their operations and markets, as well as modernize their products and services.
As such, Peza Director General Charito B. Plaza said, there is no need for the investment body to be covered by the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, as Rep. Joey Salceda, House Ways and Means panel chairman, insists. Even without the measure, Plaza argued, the grant of tax perks in the Peza are performance-based and time-bound because locators are mandated to continuously bring in new capital and upgrade their activities, or else.
“Peza incentives are not given to companies, enterprises, locators or ecozone developers per se, but incentives for export-based industries are for those who are able to upgrade their products [and] activities, expand their projects and markets, [as well as] those who can bring technology transfer in the Philippines,” Plaza said in a statement.
Citing the implementing rules and regulations of the Special Economic Zone Act, Plaza pointed out the Peza can suspend and revoke the business permit of a locator for failure to comply with the terms and conditions governing its incentives. For the same justification, an economic zone firm may also be stripped of the tax perks it is enjoying.
Further, locators are required to submit on time fiscal and performance reports to the Peza in order to continue availing themselves of incentives, Plaza added.
On top of this, they are tasked under the Tax Incentives Management and Transparency Act (Timta) to submit periodic reports—which the Peza consolidates—to the Bureau of Internal Revenue (BIR) and the National Economic and Development Authority (Neda).
The reports contain the list of incentives received by economic zone firms and data on investments poured in, taxes paid, employment generated, among others, during a certain period.
“Hence, Peza incentives are performance-based from the beginning, not an afterthought. [They aim] to motivate and encourage companies to upgrade, grow and perform. Peza has a validation process for this in order for locators and companies to avail themselves of tax incentives,” the Peza chief argued.
Comparing it to supply and demand economics, Plaza said the investment body only provides tax perks to activities and products that are needed in the market. Albay Rep. Salceda and Department of Finance (DOF) officials, in pushing for the passage of the Citira bill, had explained they intend to make incentives performance-based, time-bound, targeted and transparent.
“In other words, incentives are not forever enjoyed by companies which fail to innovate and expand; thus, they lose the world buyers and close shop,” Plaza said, alluding to Salceda’s blunt assertion that the Citira coverage of ecozones is meant to stop the practice of “forever” incentives.
Under the Citira bill, corporate income tax (CIT) will be reduced to 20 percent by 2029, from 30 percent at present, at the expense of incentives granted to locators. If signed into law, 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, within five years.
To facilitate ease of doing business, economic zone firms directly remit 2 percent of their GIE to the local government and 3 percent to the national government yearly.
Plaza warned the removal of the GIE as an incentive could result in corruption, leakages and inconvenience, as businesses will need to deal with various levels of bureaucracy in their shift to paying CIT. Echoing the Peza chief’s appeal, locators are asking legislators to exclude them from the coverage of the Citira bill and allow them to keep their incentives.
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