Sen. Sherwin Gatchalian is open to keeping a tax perk for certain industries, as some companies have expressed plans to put their expansion here on hold.
Gatchalian, who heads the Senate committee on economic affairs, however hinted that he was leaning towards keeping this incentive timebound.
The senator is referring to the 5-percent gross income earned (GIE) tax, which many export-oriented firms pay in lieu of all other taxes.
Under current rules, the perk does not have any expiration.
However, it is one of the incentives to be removed under the second comprehensive tax reform package.
He said that keeping the incentive for certain cases was a “possible consideration.”
“Different sectors will have different cost structures, so we will have to look at the cost structures of these different sectors. We’ll also see if the 5-percent GIE is applicable,” he said.
He said that the Senate had asked the Department of Finance to give lawmakers the cost structures of major industries, as tax reform gets subject to further scrutiny.
This develops after the House of Representatives passed its version of the second tax reform package, now called the “Trabaho” bill.
The bill will lower the corporate income tax (CIT), a benefit that many domestic companies will enjoy after years of paying one of the highest, if not the highest, CIT in Southeast Asia.
At the same time, the bill will rationalize tax incentives. While it will still offer tax perks such as an income tax holiday, it will eventually remove the 5-percent GIE tax.
While the senator is open to the 5-percent GIE tax, he expressed reservations about keeping the perk perpetual, calling it a “contention” in the discussion about tax reform.
“We are the only country in the world that gives a perpetual incentive. That should be looked at because if you look at [giving tax] incentives, you lose revenue. You lose revenue, you lose [funds for government] projects,” he said.
“I do admit that we need to rationalize the concept of giving perpetual incentives,” he added.
He said this on the sidelines of the Arangkada Fora 2018, spearheaded by the Joint Foreign Chambers of the Philippines.
He said he met with representatives of these foreign business groups on Tuesday, where tax reform was also discussed.
The groups, he said, noted that some companies are “holding their expansions because they don’t know how the incentives will look like.”
He said the meeting included representatives of the business process outsourcing (BPO) and electronics export industries, which he noted might feel “negative effects” from the package.
“The [electronics exports] and the BPO industry accumulatively is about more or less 20 percent of our [gross domestic product]. [These are] very sizeable [industries] for our economy and we don’t want a scenario where this industry would be weakened,” he said.