Foreign companies want to keep their tax breaks for at least five more years as the pandemic continues to inflict heavy losses on their operations here. A renewed push to immediately pass a tax rationalization bill meant, however, that they are facing an uphill battle.In a letter to Sen. Pia Cayetano dated May 27, the Joint Foreign Chambers (JFC) expressed their reservations over Corporate Recovery and Tax Incentives for Enterprises Act (Create).
“All leading economists are telling us that it will take years for the country to recover. Coupled with the fact that no reliable vaccine is on the horizon yet, we believe it is but reasonable and logical to let the dust settle first (and we do not know yet when it will settle) and give existing investors a period of five years before any drastic changes in tax incentives are put in place,” they said.
Cayetano sponsored the previous version of Create, or the Corporate Income Tax and Incentives Reform Act (Citira). Both are iterations of a tax reform package first introduced by the Department of Finance to lower the corporate income tax and rationalize tax incentives.
Create seeks to reduce to 30 percent from 25 percent the corporate income tax—currently the highest in Southeast Asia—by July. Citira, on the other hand, sought a gradual reduction of the tax by 1 percentage point each year, hitting 20 percent by 2029.Projects in economic zones, such as call centers and manufacturing factories that make products for export, currently do not pay the corporate income tax that regular companies are required to pay. In lieu of local and national taxes, they pay a 5-percent gross income earned (GIE) tax.
Create seeks to scrap the GIE tax, although it will give firms four to nine years to transition to paying the higher corporate income tax.
“Existing investors under the 5-percent GIE incentive and operating ROHQs (regional operating headquarters) are being asked to transition to more expensive tax regimes, when their future operations are uncertain at best and severely impacted at worst,” JFC said. The JFC wanted companies to be given the chance to keep the GIE tax, even if that meant complying with higher standards, such as directly employing at least 10,000 Filipinos or exporting 90 percent of their production.Nonetheless, “the requested five-year delay in starting the new fiscal regime for existing investors will demonstrate the support of the government for the conditions key export sectors of the economy face when their current and future operations are highly uncertain. New investors will also observe how the government has accommodated these concerns,” JFC added. —Roy Stephen C. Canivel INQ