MANILA, Philippines — Business groups Joint Foreign Chambers of the Philippines (JFC), the Information Technology and Business Process Association of the Philippines (IBPAP) and Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) are pushing for improvements in the Senate version of the Corporate Income Tax and Incentives Reform Act (CITIRA) to address concerns which include the slow schedule of reduction of CIT, short transition period as well as removal of the powers and functions of the Philippine Economic Zone Authority (PEZA).
In a position paper signed by the American, Australian-New Zealand, Canadian, European, Japanese, and Korean chambers, the Philippine Association of Multinational Companies Regional Headquarters Inc., as well as IBPAP and SEIPI addressed to Sen. Pia Cayetano dated March 3, the groups said that while Senate Bill 1357 provides a better incentive package than the House of Representatives’ CITIRA version, they are hopeful their concerns on the Senate version of the bill could be addressed.
Among the concerns raised by the groups is the slow reduction in CIT as the bill would reduce the CIT rate by one percentage point every year from 30 percent to 20 percent by 2029.
As the Philippines’ high CIT rate has been ineffective in attracting investments compared to other Southeast Asian countries, the groups are proposing the CIT rate be reduced to 25 percent in the first year and trimmed by one percentage point per year to reach 20 percent by 2025.
“We believe that this is an opportune time for the Philippines to take a big step and make a bold statement that we are indeed serious in welcoming foreign investments into the country,” the groups said.
The groups also said they have concerns with the short transition period for regional operating headquarters (ROHQs).
Under the bill, ROHQs would be subject to the regular CIT two years after the CITIRA takes effect.
The groups said they would want that under the bill, the Strategic Investment Priorities Plan (SIPP), which lists activities qualified for incentives, to include those provided by Global Corporate Centers (GCC) and those that will qualify as GCCs shall continue to be taxed at 10 percent of their taxable income for not more than four years from the effectivity of the CITIRA.
“As many ROHQs serve mostly foreign affiliates, we believe that the shared services industry should be definitely encouraged by allowing them to avail of the incentives under this bill, if they are so qualified,” the groups said.
Another concern raised by the groups is on the maximum seven year transition period on incentives given to industries exporting 100 percent or almost 100 percent of their goods and services.
The groups are recommending that a longer transition period of 10 years be given for projects, activities, or registered business enterprises (RBEs) that will satisfy any of the following conditions: exporting 100 percent of their goods and/or services, or for those exporting at least 90 percent of their goods and/or services overseas, but the portion of sales not for export shall not be entitled to the benefits; employing at least 10,000 Filipinos directly engaged in the production of the registered project prior to the effectivity of CITIRA regardless of whether the employees are in one or in several locations; and engaging in footloose projects or activities.
While the US-China trade war last year and COVID-19’s impact on supply chains are opening opportunities to attract investments through firms’ diversification out of China into Southeast Asia, the Philippines is not benefitting because of uncertainty on the future of fiscal incentives.
“Thus, by providing exporting RBEs a long transition period to enjoy existing incentives and providing an attractive package of incentives for new investors, we believe that the Philippines will strengthen its fiscal policies in order to once again attract significant inflows of foreign investment in the manufacturing and service industries,” the groups said.
Also raised by the groups is the lack of clarity on whether existing RBEs can register their expansion activities or renew their incentives.
To avoid confusion, the groups are recommending to state in the bill that expansion of registered activities may qualify to register under CITIRA as well as renewal of expiring registered project or activities and they will be entitled to applicable incentives subject to the criteria and conditions in the SIPP.
In addition, the groups want registered projects or activities prior to the effectivity of the CITIRA to be allowed to register and avail of the special corporate income tax or enhanced deductions subject to the criteria and conditions set in the SIPP.
The groups said they likewise want PEZA’s full authority to process and approve applications for registration of projects or activities under the SIPP to be retained.
“We believe that credit should be given where credit is due and given PEZA’s proven track record of efficiency for so many years, the trust and confidence of foreign investors on PEZA as a corruption-free agency, and its ability to promote the Philippines and attract foreign investments into the country, the said body should be allowed to retain its powers and functions,” the groups said noting there are safeguards in place to ensure the PEZA does not overstep its authority.
Other suggestions made by the groups include adoption by the Senate version of the Structural Adjustment Fund worth P5 billion proposed under the House of Representatives’ version to support the IT- business process outsourcing industry; for the Fiscal Incentives Review Board which will approve projects qualified for incentives with investments amounting to $1 billion and above, to have a representative from the investment promotion agencies and one of the industry associations as part of the technical committee; and deletion of the provision granting the Secretary of Finance exclusive and original jurisdiction to interpret provisions on tax incentives.
“We hope and trust that our comments and suggestions will merit your considerations in the deliberations of this bill,” the groups said.