PEZA, Board of Investments challenge 2nd TRAIN package

MANILA, Philippines – The country's top investment promotion agencies challenged proposals included in the 2nd tranche of the Tax Reform for Acceleration and Inclusion (TRAIN) law being pushed by the Department of Finance (DOF).

During the 3rd hearing of the House committee on ways and means on the matter, the Philippine Economic Zone Authority (PEZA) and the Board of Investments (BOI) argued against the removal of tax incentives and other administrative matters being proposed under TRAIN Package 2.

The measure aims to repeal at least 120 special laws on investment incentives and consolidate them under one omnibus incentive code. It would also lower corporate income tax (CIT) rates.

PEZA questioned the legality of the measure and cited Section 10 of Article III of the 1987 Constitution, which states that "no law impairing the obligation of contracts shall be passed."

"This constitutional provision prohibits the enactment of any law that would impair the performance of contractual obligation," PEZA said.

PEZA also reminded the DOF that the government invited both local and foreign investors to locate in economic zones with the promise that they would enjoy incentives provided by law.

"Since the incentives in the registration agreement are obligatory on the part of the government, it cannot be revoked by a subsequent law for it will result in the violation of the non-impairment clause which is guaranteed by the Constitution," PEZA said, adding that its officials would be at risk of being sued.

PEZA also urged the DOF to implement a grandfather rule – a provision in which an old rule continues to apply to some existing situations while a new rule would apply to all future cases.

While PEZA ventured into the legal roadblocks, the BOI highlighted the benefits of granting incentives to investors. (READ: Foreign investment pledges down 51.8% in 2017)

The BOI said more than two million jobs have been created since the agency's inception in 1968.

It also presented a cost-benefit analysis, in which it asserted that for every peso tax expenditure, the government gains P2.02 in additional tax revenue, P13 worth of domestic deals, and P16.56 worth of export sales.

Finance Undersecretary Karl Kendrick Chua also presented a cost-benefit analysis on tax incentives as well, but with glaringly different results from the BOI.

"On average, we find that for every P1 incentive we give, only 60 centavos come back, so on average, there are many redundant or unnecessary incentives," Chua said.

Chua assured the investment promotion agencies and companies that the DOF does not intend to completely remove incentives. He said some would be retained, so long as they are "performance-based, targeted, transparent, and time-bound."

President Rodrigo Duterte specified in his 3rd State of the Nation Address that  Congress should pass TRAIN Package 2 by year-end. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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