Peza presses tax reform exemption

The Philippine Economic Zone Authority (Peza) warned that it would be “dangerous” to compromise on its tax perks as the Duterte administration’s fight to rationalize tax incentives waged on.

Peza Director General Charito Plaza told reporters last week that the agency was sticking to its position that companies registered under Peza should be exempted from the tax reform package.

The tax package, now called Comprehensive Income Tax and Incentive Rationalization Act (Citira), will lower corporate income tax rates and rationalize tax incentives. It is the second tax reform package of the Duterte administration.

After consulting the industries involved, she said their position was to first have Peza exempted and then move toward enhancing the agency’s incentives by amending its enabling law.

Peza has on its side the Joint Foreign Chambers of the Philippines (JFC), which is composed of foreign business chambers that in total have invested more than $30 billion in the country. The JFC also wants Peza to be exempted from the proposed tax reform.

“We are not willing to compromise because it’s a dangerous compromise. We should not tinker with our incentives, which presently are really globally competitive. Otherwise we lose the competition,” she said.

The proposed amendments to the Peza law include raising the gross income earned (GIE), which companies in economic zones pay in lieu of local and national taxes. The amendment will raise the GIE from 5 percent to 7 percent.

Business process outsourcing (BPO) and manufacturing firms are mostly located in economic zones registered under Peza.

The Department of Finance, however, does not agree with keeping the GIE tax since it currently does not have any expiration period under current rules. The DOF said it believed tax perks should be time-bound.

Peza has been batting for more power over its tax perks. Plaza said in a statement last month that revising the agency’s charter was long overdue.

“The proposed amendments to Peza law went through rigorous consultations and acquired the support of various stakeholders who see it an opportune time to update the 24-year-old law in the current global context of competition of economic zones,” she said.

“It is not a mere whimsical or political move to amend the Peza law, but a necessary legislative agenda for total development and industrialization,” she added.

Three separate but similar bills were filed in the 18th Congress. But in essence, these bills propose, among other provisions, to keep the GIE tax.

But Plaza’s efforts to revise the Peza law are facing a number of challenges from within the government itself as battle lines are drawn over where agencies stand on the issue of tax perks.

Peza’s amendments clash with the second tax reform package, which wants to just have one law to rationalize all the tax perks offered by investment promotion agencies like Peza.

Enjoying the support of President Duterte himself, the bill, which was refiled after failing to get passed in the 17th Congress, has had a headstart compared to the Peza amendments.