Peza: 2nd tax reform package ‘unconstitutional’

Duterte’s second tax reform package would invalidate existing government contracts with investors, a move which the Philippine Economic Zone Authority (Peza) has called “unconstitutional.”

Elmer San Pascual, manager of Peza’s promotion and public relations, told reporters last week that the tax package would go against a constitutional provision that protects existing government contracts.

This is because the tax package would remove the tax incentives being enjoyed by companies registered under Peza, even though these perks were promised in the said agreements.

Filed as House Bill No. 7438, the package wants to lower the corporate income tax while reducing the tax perks being offered by the government.

Under the bill, companies that benefit from the current tax perks could keep these incentives for a transitional period of no less than five years.

The longer the company had received the perk, the shorter the transitional period would be, after which, they would have to conform with the new set of perks listed under the bill.

“[On] our part, we cannot agree to that. We cannot legislate a law which would violate contracts especially contracts [with the] government. There is a provision in our Constitution [regarding] the inviolability of a contract,” San Pascual said in a mix of English and Filipino.

According to the Bill of Rights of the 1987 Constitution, no law impairing the obligation of contracts shall be passed.

The Duterte administration’s moves to reform the country’s tax rules have caused uncertainties in Peza’s investment pledges, which dropped for the first two months of 2018.

Under the present agreement, a Peza-registered company pays five percent gross income earned (GIE) in lieu of all taxes, a perk which essentially has no expiration date. This GIE tax would take effect only for companies that have used up their income tax holidays of four to six years.

The bill, which echoes the proposal made by the Department of Finance (DOF), will remove that perk. Companies that have enjoyed the incentive for more than a decade could keep the perk for only two more years.

“Our contract with our investors [means] that as long as you are doing your registered [business] activity, you would continue to enjoy 5 percent GIE tax. That’s perpetual. If they would legislate [a law] violating that contract, that is, we think, and I personally think, in violation of the constitution,” he said.