DTI: Rationalization of fiscal incentives good for business

Businesses operating in the country stand to gain more with the proposed rationalization of fiscal incentives granted to enterprises registered with the Board of Investments and Philippine Economic Zone Authority (Peza), according to Trade Secretary Gregory L. Domingo.

Speaking to reporters Wednesday night, Domingo explained that under the proposal agreed on by the Departments of Trade and Industry and Finance, BOI enterprises would be entitled to a uniform 15-percent income tax for 15 years.

Peza locators will be entitled to income tax holiday for only four years, after which they would have to choose from two options: a 5-percent tax on gross income earned (GIE) in lieu of all national and local taxes or a 15-percent income tax for 15 years.

Peza incentives, however, can be renewed by the Peza board of directors, he added.

“Obviously, the Peza model works for us so we want to keep the option of being able to extend the incentives,” Domingo said.

“With the BOI, it is a one-time roll out of incentives, especially for those that are not exporters. At Peza, the board could decide to extend. We just put in a specific period so that at some point in the future, when the government so decides that giving these  incentives doesn’t make sense anymore, the government will have the option to terminate the incentives. Right now, under the existing law, companies are entitled to these incentives forever, but this is not the correct policy,” Domingo explained.

According to Domingo, the proposed 15 percent income tax for 15 years will be an advantage for many companies because it will generate bigger savings especially in the latter years when their incomes are expected to be bigger.

In the early years of operations, particularly in the first four years, businesses would still be in the process of ramping up their respective productions, which means the incomes being protected from taxes are still smaller, compared to the incomes that will be taxed by 30 percent five years onward.

“For me, that’s a slam dunk for businesses. On the surface, the income tax holiday looks attractive because of the (tax) exemptions. But that will only be for four years and you would then still be ramping up your production. And if that’s the case, what level of income will you be protecting then? Incomes come in later and that’s where the 15 percent income tax will prove to be beneficial,” Domingo explained.

“You don’t have to be a genius to figure out that (this proposed fiscal regime) is better. We have asked foreign chambers to ask their members to calculate this because I bet you, the 15 percent income tax for 15 years scheme is superior to the income tax holiday,” he added.

The trade chief further noted that the proposed fiscal incentive rationalization would cover BOI and Peza, which accounted for about 90-95 percent of businesses in the Philippines. Other investment promotion agencies, while they have their own regimes, are expected to adopt the same scheme because the proposal by the DTI and DOF “is a very attractive tax regime.”