The Philippine Economic Zone Authority (PEZA) is open to making the five percent gross income earned (GIE) incentive enjoyed by locators time-bound, if the rate will be raised to seven percent.
At present, PEZA locators can enjoy the five percent GIE incentive without limit, after the income tax holidays they availed of for four to six years expire.
PEZA director general Charito Plaza said the period within which the incentive could be enjoyed must consider the return of investments of the company.
She said based on consultations with firms registered with the agency, the locators are in favor of raising the GIE rate.
“We have been consulting our locators. They are amenable to increase it to seven percent,” she said.
The five percent tax on GIE paid by investors in lieu of all taxes has been considered the key to PEZA ’s success in attracting investors not only because of the tax incentive, but also because it has made doing business easier for firms through the agency’s one-stop shop.
With the GIE, investors no longer have to deal with local government units (LGUs) which, at times, may have certain interests.
Plaza said scrapping the GIE would remove ease of doing business and make it prone to corruption as locators would have to deal with the different government agencies.
With the GIE, she said there is no room for corruption as the sales invoice would clearly show the gross income of the company and the percentage which would be paid to the government.
She said the higher GIE rate would also allow LGUs to get a bigger share from the taxes paid.
While PEZA is open to making the GIE time-bound, she said the government should consider the industry and investment made by the company in deciding how long the incentive could be availed of.
“Let us study carefully what is time-bound. We have to consider also their investment. There has to be ROI for investor. When they apply for example, they have to tell us how many years will they have the ROI so that we base it from there,” Plaza said.
“We are now classifying the kind of investment. We have the SIPP (Strategic Investment Priorities Plan) which is now still being deliberated. So, we start from there,” she added.
The SIPP, like the current Investment Priorities Plan, would identify preferred investment activities which may be given incentives by the government, but would be more strategic by listing sectors which provide the best benefits to the country.
Plaza said prospective investors are on a wait-and-see stance,while existing locators are not pursuing expansion plans amid uncertainties on the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill which seeks to reduce the corporate income tax rate to 20 percent from 30 percent and rationalize fiscal incentives.
The uncertainties on the planned changes in the incentives regime have been blamed for the 55 percent decline in investments registered with the PEZA which reached P87.85 billion as of the end of September.
While PEZA was initially targeting a 10 percent growth in approved investments this year from P237.57 billion last year, Plaza said it would be difficult to achieve the target.
She said the agency expects lower investments this year.
Still, she said PEZA assures investors it would work to protect incentives.
Former PEZA director general Lilia De Lima, who served as head of the agency from 1995 to 2016, said the GIE incentive should be retained as its removal would make the country a less attractive location for investments and remove gains made in improving the investment climate.