Company with foreign firms as clients says Create not in its ‘best form’

The latest version of the Duterte administration’s plan for tax breaks will still make the cost of doing business in the Philippines more expensive for companies that have been operating for more than a decade in economic zones, a professional services firm said.

PwC Philippines said that the tax reform bill is still not in its best form, even though it had already extended the period companies are allowed to hold onto their existing tax breaks.

The tax package is part of the DOF’s tax reform push. In essence, the tax reform package will lower corporate income tax (CIT) while imposing a new way of computing tax breaks for some companies, like those in economic zones.

It was previously called Citira, or Corporate Income Tax and Incentives Reform Act (Citira).

Now called Corporate Recovery and Tax Incentives for Enterprises Act (Create), the latest proposal from the Department of Finance now featured some substantial changes.

These changes, however, are still not enough, according to Alexander Cabrera, PwC Philippines’ chair and senior partner.

Cabrera, in a 2018 interview, said some of his company’s clients, mostly foreign companies, are “looking for exit strategies” because of the proposed tax package.

Cabrera was one of the panelists at an online forum hosted by the Management Association of the Philippines and the Philippine Disaster Resilience Foundation (PDRF) on Wednesday (May 27) where he briefly touched on foreign direct investments.

“Employment is not only generated by domestic enterprises but also [by] export enterprises,” he said.

“We’re talking about attracting foreign direct investments here. If you want to attract foreign direct investments here, you first need to keep those who are already here,” he said.

“In that regard, the Create bill is very good but in so far as keeping incentivized foreign investors who are already here, the Create bill still needs to acquire its best form,” he added.

The changes under Create included an immediate drop in CIT from Southeast Asia’s highest of 30 percent to 25 percent this July, as opposed to the slow reduction spread in 10 years under Citira.

But many companies in economic zones are already benefiting from low tax rates, thanks to the 5-percent gross income earned (GIE) tax which they pay in lieu of local and national taxes.

Create extends the transition period, or the time companies can still hold on to the 5 percent GIE, to 4 to 9 years.

In comparison, the Citira passed by the House of Representatives gave a transition period of 3 to 5 years, while the pending Senate version had it at 2 to 7 years.

When asked to expound on his statement, Cabrera said in a Viber message that the transition period under Create is “no good.”

He said a survey among 110 respondents conducted by his firm showed that 80 percent of businesses registered in economic zones are Japanese companies.

Since these companies had been operating for more than 10 years, their sunset period is four years after which they would be “subjected to double the rate they are paying before, which essentially means no more tax incentive.”

Edited by TSB