Business to wait for next administration for new fiscal incentives

MANILA, Philippines – Business groups are resigned to the fact that a bill rationalizing the country’s incentives offered to business would have to wait until the next administration. (READ: ‘Institutionalize economic reforms before Aquino steps down’)

Peter Perfecto, executive director of the Makati Business Club (MBC), said the group would rather stay with the status quo than rush passing a legislation on incentives that would only weaken the country’s competitiveness.

“We have to wait for the next administration,”  Perfecto said on the sidelines of the Public and Private Sector High-Level Dialogue held on October 16.

He added that MBC thinks the bill on fiscal incentives rationalization has a difficult road to negotiate before being passed.

The rationalization of fiscal incentives bill is pending with the ways and means committees of both the Senate and the House of Representatives.

“We did not include this bill [on the list of bills that are moving forward] because we know it has a long way to go,” Perfecto said. 

Won’t affect investors confidence 

Perfecto believes, however, that the delay in the bill’s passage won’t affect investor confidence.

“That is precisely the concern that is why no agreement has been reached,” he said.

He added that business shares the view of Lilia de Lima, director general of the Philippine Economic Zone Authority (PEZA), who previously said that she would rather not tinker with the current form of incentives as it would only affect the competitiveness of the Philippines as an investment destination.

Income tax holidays

A key issue during deliberations on the bill is on whether economic zones outside those administered by PEZA should grant income tax holidays (ITH) to companies located in their areas.

The Department of Finance (DOF) is against the proposal as this would expand the number of economic zones that would grant ITH.

Both trade and finance departments, however, acknowledge the effectiveness of the PEZA  package as an incentive. (READ: Fiscal incentives rationalization to add P30B in PH annual revenue)

After a 4-year or 6-year ITH, PEZA-registered firms enjoy a preferential 5% tax on gross income earned (GIE). PEZA locators are mostly export-oriented manufacturing companies.

There are at least two investment promotion agencies (IPAs) administering zones out of the 11 that currently do not grant ITH.

If the proposal is adopted in its current form, PEZA companies as well as locators in other ecozones will automatically get 4 years of ITH.

They will be given the choice of either of the two schemes: a 5 % tax on GIE for the next 11 years, or 15 % corporate income tax (CIT) for 15 years.

The proposal is to have the preferential rate on taxes, whichever the companies choose, renewable for another 15 years to be determined by each IPA’s board.

Companies registered with the Board of Investment will no longer enjoy ITH under the plan. Instead, these firms will enjoy 15% CIT for 15 years. – Rappler.com