Former PEZA chief warns vs changes in ecozone perks

MANILA, Philippines — Former Philippine Economic Zone Authority (PEZA) chief Lilia de Lima yesterday said the removal of the five percent gross income earned incentive given to ecozone investors under the government’s tax reform program would make the country a less attractive location for investments and wipe out gains made in improving the investment climate.

Speaking at the general membership meeting of the Makati Business Club, De Lima, who served as PEZA director general from 1995 until 2016 under four different presidents, said while she supports the Tax Reform for Acceleration and Inclusion (TRAIN) 2 or the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill as it would help make the country competitive in terms of reduced corporate income tax rate, she has concerns on the plan to change the incentives regime offered by the investment promotion agency.

“I support TRAIN because it will reduce corporate taxes. We are very uncompetitive because we are among those with the highest corporate tax not just in the region. However, I challenge the inclusion of amending the PEZA Law,” she said.

Approved on third and final reading at the House of Representatives, the TRABAHO bill seeks to bring down the corporate income tax rate gradually to 20 percent from the present level of 30 percent, and rationalize fiscal incentives.

Among the planned changes in fiscal incentives under the TRABAHO bill is the removal of the incentive enjoyed by PEZA locators of payment of five percent tax on gross income earned in lieu of all taxes, after their income tax holidays for four to six years expire.

De Lima said the five percent gross income earned incentive has been the key to the success of PEZA in attracting investments.

In particular, she said investments grew five times in 1995 or in the first year the incentive became available, compared to the previous year.

Aside from the five percent gross income earned incentive, she said PEZA’s one-stop shop for issuance of permits and exemption of locators from local government business permits have also helped in attracting investments.

“It is very important for the success of these companies to get the five percent gross income earned incentive. It is not so much the amount...It will be difficult for them (f we remove the incentive). Spare them from abusive LGUs (local government units). There are LGUs that are good, but there are those who are abusive,” she said.

Even as the TRABAHO bill is still being deliberated, she said investments registered with the PEZA have already declined.

As of end-September, investments registered with PEZA reached P87.85 billion, down 55 percent from the P196.46 billion in the same period last year.

“We are just discussing this, already companies are holding off on (their investments),” De Lima said.

She also said the changes in the incentives regime in the country may make investors opt to locate in other Southeast Asian countries where they could get better incentives.

Malaysia is offering income tax holidays for 10 years, while Singapore and Thailand provide tax perks for 15 years, Indonesia for 20 years and Vietnam for 30 years.

Last week, PEZA director general Charito Plaza said she is seeking a dialogue with President Duterte to air the agency’s position on the TRABAHO bill.