The Department of Trade and Industry (DTI) said that repealing tax perks might breach existing contracts with investors, marking the first time it pushed for compromises under the divisive “Trabaho” bill, a document showed.
Dated Oct. 18, the document listed some compromises that should be included in the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, the second tax reform package of the Duterte administration.
The Trabaho bill, which was passed in the lower house without finishing any study on job impact, will lower the corporate income tax while rationalizing tax incentives.
Prior to the document, DTI has been publicly defending the Trabaho bill in its current form against critics.
Now, it seems DTI has been mulling over the dire concerns raised by business groups and even the Philippine Economic Zone Authority, which warned of massive job loss and loss of investor confidence among other negative implications.
DTI cited old bilateral investment treaties between the Philippines and other countries, which afforded protection for foreign investors.
“Limiting and/or reducing the granted incentives under their certificates of registration may constitute a contractual breach that may be elevated as a treaty breach,” the document read.
Nothing, however, is final yet. According to the document, these are among the “points that are currently being discussed with the DOF (Department of Finance).”
In part, these compromises aim to address concerns surrounding the 5-percent gross income earned (GIE) tax, which companies in economic zones pay in lieu of local and national taxes.
Other than less costs, the incentive is seen by many as a shield against abusive local governments who might strong-arm these companies.
The perk, in essence, could last forever.
But in the Trabaho bill, this will only have a transition period of two to five years before it gets scrapped.
Companies that have used it longer would be bound to lose it in as soon as two years.
In the document, DTI recommended a 10-year transition period for the 5-percent GIE tax, or until 2029. Moreover, DTI wants companies to be allowed to opt in to the new provisions of the bill two years after it becomes effective.
On top of this, DTI is also pushing for a new provision in the bill which it claims will prevent “any unnecessary intervention in the business operations” by the local government unit.
This will be done by “providing the local government share allocation” in the corporate income tax, similar to how the local governments have an allocated share in the 5-percent GIE tax.
Asked to confirm the document, DTI Secretary Ramon Lopez told the Inquirer that talks were ongoing “to address [the] concerns of stakeholders.”
It remains to be seen if DOF is willing to concede to DTI’s terms. If it does, this would likely pressure the Senate to tweak the bill, especially since it was the DOF that originally came up with the tax package.
The Senate also faces the pressure of elections next year, especially since a lot of Filipinos are still feeling the impact of a high inflation rate that was partly caused by the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the first tax reform package of the Duterte administration.