DTI pushes longer transition period in CITIRA bill

MANILA, Philippines — The Department of Trade and Industry (DTI) will continue to push for a longer transition period on the rationalization of fiscal incentives when the proposed second package of the government’s comprehensive tax reform program is tackled at the Senate.

Trade Secretary Ramon Lopez told reporters that as the House of Representatives has already passed at the committee level Package 2 or the Comprehensive Income Tax and Incentive Rationalization Act (CITIRA) bill, which seeks to gradually reduce the corporate income tax rate to 20 percent from 30 percent at present and introduce changes to the incentives regime, the DTI will just push for the longer transition period at the Senate.

“We won’t comment at the House (of Representatives) anymore so the bill can move fast. We will reserve our comment to the Senate,” he said.

Under House Bill 313 or CITIRA, firms which already enjoy incentives prior to the effectivity of Package 2 would be allowed to continue to avail of such for the remaining period of the income tax holidays (ITH) or for a period of five years only.

For the five percent tax on gross income earned (GIE) paid in lieu of all national and local taxes by firms registered with the Philippine Economic Zone Authority (PEZA), the CITIRA bill provides that the said incentive be allowed to continue for two to five years, depending on how long they have been enjoying it.

Lopez said the DTI supports Package 2, but would want a longer transition period of up to 10 years for firms already availing of the incentives.

“For me, five to 10 years, that is still the position. We will discuss it with the Senate,” he said.

He said the DTI also continues to talk with the Department of Finance on the longer transition period.

DTI wants a longer transition period to address concerns on the planned changes in the incentives regime raised by PEZA-registered firms that are already preparing exit plans in case Package 2 takes effect in its current form.

Part of the DTI’s push for a longer transition period is to raise the tax on GIE rate paid by PEZA-registered firms to eight percent as the increase is expected to allow the government to generate additional revenues of P30 billion to P40 billion.

When asked to comment on whether the PEZA should be part of the Fiscal Incentives Review Board (FIRB) which will have the power to grant and cancel incentives under the CITIRA bill, Lopez said there would only be a need for PEZA to be in the board if all other investment promotion agencies (IPAs) are also members.

The CITIRA bill states the FIRB would be chaired by the finance secretary who will have the veto power over the approval and cancellation of incentives, and automatically be co-chair of all the existing and future IPAs.

FIRB will also be composed of the National Economic and Development Authority director general, DTI and Department of Budget and Management secretaries, as well as the executive secretary as members.

On PEZA’s push to strengthen its role and functions through House Bill (HB) 3747, Lopez said the proposal would face hurdles.

Among the amendments being pushed under HB 3747 is to put PEZA under the Office of the President, give PEZA director general the rank of department secretary, and grant PEZA-registered firms a special preferred tax rate of seven percent on GIE, provided the companies would have option to immediately enjoy the seven percent on GIE instead of having ITH.

Lopez said he was not informed by PEZA of the move even if he serves as chairman of the PEZA board.