PEZA seeks Palace dialogue on ecozone incentives reform

MANILA, Philippines — The Philippine Economic Zone Authority (PEZA) is seeking a dialogue with President Duterte in its bid to keep the current incentives regime for investors and not to proceed with the second package of the government’s tax reform program, citing its negative consequences to the economy.

“We are appealing to the President. Sometime soon, I will be talking to our President. Enough of the scolding. Enough of the bullying from other leaders of government to keep our mouth shut. I am now very vocal to speak up, speak to the President that we should not push through with TRAIN (Tax Reform for Acceleration and Inclusion) 2,” PEZA director general Charito Plaza said during the Economic Journalists Association of the Philippines awarding ceremony.

While there have been consultations with the Department of Finance (DOF) earlier, she said the sentiments of locators were not considered in TRAIN 2 or the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill approved on third and final reading at the House of Representatives.

“We have made clear our stand on supporting government’s efforts to reduce the country’s corporate income tax from the present level of 30 percent. However, we are not in agreement with those provisions that negatively impact PEZA and its locators,” she said.

Under the TRABAHO bill, corporate income tax would be gradually reduced to 20 percent from 30 percent and current incentives enjoyed by investors would be modernized.

Part of the changes under the TRABAHO bill is the removal of the five percent gross income earned incentive paid in lieu of all taxes, enjoyed by investors registered with the PEZA after their income tax holidays expire.

Plaza said registration for investment projects at the PEZA have declined due to investors’ uncertainties on what would happen to the incentives regime.

In particular, investments registered with the PEZA declined 55 percent to P87.85 billion as of end-September, from the P196.46 billion in the same period last year mostly due to the drop in new investments in manufacturing.

Even as there are companies which have expressed interest to set up operations in the Philippines, particularly from China, given opportunity seen with the ongoing trade war with the US, she said these potential investors are on a wait and see on the final form of the TRABAHO bill.

She said there are also existing locators which have been instructed by headquarters to start looking at possible locations for transfer due to concerns on the planned move to change current incentives.

Given the jobs created and benefits to domestic firms which serve as suppliers for PEZA locators, she said pushing through with the TRABAHO bill would have negative consequences.

Plaza said purchases of industries in PEZA from local suppliers which reached P265 billion in 2016 and P298 billion last year would no longer be seen when investors opt to exit or to set up operations in another country, after the measure is passed into law.

As the Philippines does not have subsidies offered by neighbors in Southeast Asia, she said changing the incentives would make the country a less attractive place for investors.

PEZA is hopeful the President would consider the agency’s position after the meeting takes place, she said.

“Especially now with the inflation caused by excise tax of TRAIN 1, the President, I think, will already listen. DOF has a different view...All they are thinking is where to get taxes, produce taxes. We are different. We are really public servants who are serving people on the ground. And what people need now are jobs. Job, job, job. And the government cannot provide these jobs. Only the private sector, especially industries can create big number of jobs,” she added.