The former head of the Philippine Economic Zone Authority (Peza) urged lawmakers to spare a crucial tax perk that has for long shielded companies from local governments that might strong-arm projects to gain favors.
Former Peza Director General Lilia de Lima said this on Wednesday during the general membership meeting of the Makati Business Club, in reaction to the looming passage of the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, the second of five packages of the Duterte administration’s comprehensive tax reform program.
This marked what is possibly the first time the respected figure in the business community aired her grievances over the Trabaho bill, a proposal that threatens the gains the agency had made in the 21 years she led Peza.
In particular, she pointed out the possible removal of 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 tax perk also acts as a shield against the ill interests of local governments since companies no longer have to pay directly to these agencies.
Otherwise, meddlesome local governments can strong-arm companies.
“The key to the success of Peza was the 5 percent [GIE tax] because it practically told the local governments, ‘hey guys, lay off.’ Let them [business] be, just let them be,” she said.
Her leadership in Peza, which earned her wide recognition in the business community, created more than a million jobs by convincing thousands of export-oriented companies to set up shop in the Philippines, despite the high cost of doing business here.
These companies, which have become crucial to the country’s merchandise exports, are threatened by the second tax package of the Duterte administration that will essentially remove the 5-percent GIE tax in two to five years.
The Trabaho bill will lower the corporate income tax while rationalizing tax incentives.
Despite the pleas of stakeholders and current Peza head Charito Plaza, the bill was passed in the House of Representatives. The bill was passed without any analysis on job impact, government officials would later admit.
Talks alone have led to the significant decline in new investment pledges under Peza, a trend which de Lima fears might only get worse.
She suggested a “middle ground,” wherein the GIE tax structure would be retained but its tax rate would be adjusted.
“But to remove the 5 percent GIE even after two years or five years, that’s practically throwing these foreign investors to the wolves,” she said.
Separately, the Department of Finance said in a statement Wednesday that the Trabaho bill was expected to generate 1.4 million jobs from 2021 to 2029 as it would “free up more capital for firms to invest and hire more workers.”
Finance Assistant Secretary Antonio Joselito Lambino II said 113,944 new jobs would be created in 2021, when the current corporate income tax rate of 30 percent—the highest in Asean—will be reduced by 2 percentage points under the proposed Trabaho bill.
In 2023, Trabaho will create an additional 171,940 jobs; 252,031 in 2025; 361,767 in 2027; and 511,021 in 2029, Lambino said, as the bill aimed to cut the corporate income rate by two percentage points every two years.
“This proinvestment tax reform package is seen to be even more attractive to firms because it will give them additional incentives on labor, domestic input and training under the proposed menu of tax incentives, while activities that already provide positive benefits to society, such as those that develop the countryside, create jobs and contribute to exports can continue to enjoy tax incentives,” Lambino added.
“With lower taxes and more performance-based incentives, firms’ behavior is directed towards expansion and creation of high-value and better-paying jobs,” Lambino added.