The Department of Finance (DOF) and the Board of Investments (BOI) have moved to cap the grant of income tax holiday (ITH) to enterprises registered with the Philippine Economic Zone Authority (PEZA) to four years and put a sunset clause on what used to be perpetual entitlement to a subsequent incentives of five percent tax on their gross income earned (GIE).
Trade and Industry Secretary Gregory L. Domingo, who is also chairman of both the BOI and PEZA, stated this in the summary of salient features proposed Rationalization of Fiscal Incentives bill that he agreed with the DOF to be jointly endorsed to the Committee on Ways and Means on both Houses of Congress for consideration.
Based on Domingo’s letter to Finance Secretary Cesar V. Purisima, the proposed bill will seek to grant incentives only to exporters and strategic investments.
Both agencies agreed on the incentives scheme and duration for PEZA and non-PEZA registered enterprises.
There are two incentive packages for PEZA-registered enterprises: Those with ITH and those without. It also specified incentives to non-PEZA enterprises located inside economic zones and freeports and those outside of these zones. Strategic investments have also specific incentives scheme and duration of tax incentive availments.
For PEZA registered enterprises that are granted four-year ITH, they will have two choices. Under Package 1, these enterprises will be eligible for subsequent or after the ITH availment, a 5 percent tax on gross income earned (GIE) in lieu of local and national taxes, except value-added-tax and real property tax (RPT) for 11 years or a 15 percent reduced corporate income tax (CIT) in lieu of local and national taxes, except VAT and RPT for 11 years. ITH may also be granted for a non-renewable energy projects, but non-extendible.
Under Package 2 or enterprises that are not granted ITH by PEZA, they will have two choices as well. They may choose 5 percent tax on GIE in lieu of local and national taxes, except VAT and RPT for 15 years or 15 percent reduced CIT in lieu of local and national taxes, except VAT and RPT for 15 years.
Both departments have also agreed that the grant of these preferential incentives shall only be for a period of 15 years and may be extended for another period based on compliance indicators but not to exceed 15 years.
These incentives scheme under Package 2 will also apply to non-PEZA registered export enterprises located inside ecozones and freeports. These enterprises, which may be registered with other investment promotion agencies (IPAs) isuch as the Subic Bay Freeports, Clark Freeports, among others, are also entitled to VAT and duty-free importation of capital equipment, raw materials, supplies and semi-finished products.
For export enterprises located outside ecozones and freeports, but are granted four year ITH by PEZA, they are also entitled to 15 percent reduced CIT for 11 years.
But if enterprises that are not granted ITH, they will be entitled to 15 percent CIT for 15 years. In addition, they will be entitled to VAT-refund and duty-free importation of capital equipment and VAT and duty-refund on imported raw materials, supplies and semi-finished products.
For strategic enterprises, they will be entitled to 15 percent reduced CIT for 15 years as well as duty-free importation of capital equipment. Registered mining operations may be granted duty exemption on imported capital equipment only.
Both DOF and BOI also agreed that the National Economic and Development Authority, DTI and DOF must be represented in the governing boards of all IPAs. IPAs are also required to submit comprehensive incentives and investments data to NEDA for monitoring and ensure transparency in the grant of incentives.
Earlier, the PEZA pleaded before Congress not to make any changes to its current incentives regime stressing the system has been working very well in attracting foreign investors and revising such system would only discourage companies to move into the Philippines.