Peza presses for exemption of export firms from incentives rationalization

The Philippine Economic Zone Authority (Peza) wants lawmakers to rationalize only the tax incentives that are offered to companies catering to the local market, and spare exporters from the said measure.

Peza Director General Charito Plaza reiterated her call for the exemption of exporters from the Create bill, or the Corporate Recovery and Tax Incentives for Enterprises Act. The bill, which forms part of the administration’s tax reform program, seeks to rationalize tax incentives for companies inside economic zones and cut taxes on those outside them.

“Exporters should not be equated with domestic companies that produce solely for the local market. The two are different in context. The expor­ters compete in a global market and face tougher competition from international competitors, while domestic producers focus only on local consumers and have few competitor[s],” she said in a recent statement.

She said the passage of the bill during the pandemic was “insensitive” to the struggling export-oriented companies who were trying to keep jobs.

“It is [a] detrimental strategy to apply a new tax incentives regime to export-based companies when in fact Peza’s tax incentives are globally competitive, tried and tested for attracting investments that other countries try to compete with,” she said.

Fourteen local and foreign business groups recently issued a joint statement calling for a grandfather rule, or an exemption from the bill of companies currently enjoying tax incentives. They reminded the national government that these businesses had stayed in the Philippines despite difficult times in the past.

“These provisions were introduced 25 years ago after destabilizing coups, the Pinatubo eruption, and the turnover of empty military bases at Clark and Subic when the government became serious about attracting foreign investment,” they said.

“To attract investors, after the initial income tax holiday (ITH) incentive expired, a 5 [percent] gross income earned tax [in lieu of local and national taxes] would apply. Investors were told this rate would continue indefinitely, and they believed the government,” the groups said.

“But today, the government talks about imaginary ‘lost revenue,’ and seems unhappy that the firms have been profitable and expanded operations in the country. They are likewise insisting that companies will invest regardless of incentives,” they said.

Plaza also said the Philippines was competing for foreign investments with other members of the Asean that offered generous investments. Vietnam, it said, offers up to 40 years of income tax holiday, as opposed to the Philippines, which gives ITH for only four to eight years.

“We have more developed Asean neighbors that have better quality of infrastructure, ease of doing business and overall competitiveness than the Philippines,” she said.

“While our incentives still keep our investors, we must realize that it becomes imperative that the government provides for a different and even enhanced incentives to export-oriented FDI for the country to be competitive as an investment destination in the region,” Plaza said. INQ