By Bernie Cahiles-Magkilat
Removal of the 5 percent tax on gross income earned (GIE) would expose export-oriented enterprises located in the economic zones to potential corruption as these investors have to deal with various levels of the bureaucracy, particularly the local government units, the Philippine Economic Zone Authority (PEZA) warned.
PEZA Director-General Charito B. Plaza emphasized that the 5 percent GIE is significant in facilitating ease of doing business in the country. Under the scheme, PEZA-registered firms would have to remit 2 percent of their GIE directly to the local government and 3 percent to the national government.
It means that government has more to earn from the GIE and is secured of its revenues therefrom, Plaza said.
“However, the removal of the GIE, as proposed under the Corporate Income Tax and Incentive Rationalization Act (CITIRA), would be a possible ground for corruption, leakages, and inconvenience because investors have to deal with various levels of bureaucracy,” Plaza warned.
The GIE simplifies tax payments processes. Instead of dealing with various government bureaucracies and agencies for their tax payments, an investor will just have to pay 5 percent GIE. PEZA, as a one-stop-shop for investors, administers all the incentives that are due to these registered enterprises.
Plaza stressed that the GIE is one of its highlight incentives in attracting investors. “So, it is very crucial because revenues paid to national and local government are deducted outright from the gross income of companies.”
CITIRA, a replacement of the TRABAHO Bill filed in the previous Congress, seeks to remove the 5 percent tax on GIE, which is the tax paid by ecozone developers, operators, and enterprises or locators in lieu of all local and national taxes.
Contrary to claims that PEZA locators enjoy the 5 percent GIE perpetually, Plaza said that PEZA incentives are not for life. Aside from GIE, PEZA grants income tax holiday, maximum of 8 years; zero VAT rating for local purchases, tax and duty-free importation of capital equipment, and tax deduction on training expenses.
She explained that PEZA incentives are not given to companies, enterprises, locators, or ecozone developers per se, but for those export-oriented enterprises that are able to upgrade their products, activities, expand their projects and markets, and those who can bring technology-transfer in the Philippines.
Plaza also pointed out that the “country is gaining from our current tax incentives, not losing.”
Upon implementation of the Tax Incentives Management and Transparency Act (TIMTA) or RA 10708, since 2015 companies are also required to submit reports pertaining to the law.
Aside from the standard reports required by PEZA, enterprises are also required to submit reports under TIMTA, which PEZA consolidates and submits to the Bureau of Internal Revenue and the National Economic Development Authority. The reports include the incentives availed by the PEZA enterprises and other data pertaining to the operations of PEZA enterprises such as investments, taxes paid and employment generated among others.
Based on these reports, Plaza said that PEZA’s incentive package, its One Stop Shop services, and its registered companies were able to continually attract investments that resulted to a total of P10.05 trillion into the Philippine economy from years 2015 to 2017.
Such P10.05 trillion is a huge amount of contribution to the Philippine economy, which is contrary to the claim of Department of Finances (DOF) that P1.2 trillion between 2015 and 2017 was allegedly lost in revenues due to tax incentives. DOF says that PEZA accounted for P879.1 billion, or 78% of the P1.2-trillion total.
She explained that PEZA’s performance is the highest contributor to export income of the country constituting 64 percent on goods and commodities and 80 percent on export service income in 2018. PEZA’s registered-industries and locators directly employ 1,508,727 Filipino workers nationwide.