By Bernie Cahiles-Magkilat
The Philippine Economic Zone Authority (PEZA), ecozone developers and locators yesterday said they are amenable to increasing the gross income earned (GIE) tax from 5 percent to 7 percent without a sunset clause nor transition provision to corporate income tax (CIT) in what could be a softening of their original “non-negotiable” stance in the current push of the Duterte administration to replace the GIE with the CIT regime.
The groups said this during a hastily called press conference by PEZA Director General Charito B. Plaza, who was rumored as the next government official in line for termination because of her strong opposition on the government’s move to overhaul the tax incentives to export-oriented investors under the proposed Corporate Income Tax and Incentive Rationalization Act (CITIRA) Bill.
“So this is our compromise, all other PEZA incentives we are united. We should be amenable to 7 percent GIE but no sunset clause or transition to CIT,” Plaza said saying majority of their investors would go for this offer. Earlier in the press conference, the groups said their position for a status quo on the PEZA incentives regime was “non-negotiable.”
The government, through the Department of Finance, has called for a shift from GIE tax to CIT, which current 30 percent rate is going to be reduced gradually over a certain period of time.
Plaza, who just arrived last night from an investment promotion speaking engagement in China, was flanked by leaders from various ecozone related organizations supporting the agency’s position for a status quo of their incentives.
The groups warned of serious economic backlash should Congress pass the CITIRA bill and missed opportunities for the Philippines, which is supposed to gain from the relocation of companies to ASEAN countries due to the US-China trade war, the EU-GSP Plus privileges, and the Hong Kong trouble.
F. Francisco S. Zaldarriaga, president of the Philippine Ecozones Association, a group of ecozone developers, said they are left with a supply glut in ecozone spaces because companies are not expanding as anticipated.
He said that developers expanded a few years ago as they saw the momentum and were running out of spaces with companies flocking to the Philippines. A developer invests between P3 billion to P5 billion per ecozone project.
But with the lingering uncertainty brought out by TRAIN 1, TRABAHO Bill, and now CITIRA bill, companies have stopped expanding or holding off expansion program.
“We have lots of companies doing that. Lots of our members have acquired inventories but are now left with lots of vacancies,” said Zaldarriaga.
Dan Lachica, president of Semiconductor Electronics Industry of the Philippines Inc., said their members are preparing exit plans should the new incentives push through.
“We’ve seen aborted expansion of over a billion dollars with 20,000 to 30,000 that have been redirected to China, Thailand and Vietnam,” said Lachica.
“To begin with, we are not the enemies, we support PEZA and it is our appeal for government to listen and exempt PEZA from CITIRA because our industry investments are in brick and mortar we cannot just leave easily,” he added.
“We are just begging because countries in the region have lower operating cost, the only thing we hold is the incentives.”
Celeste Ilagan, director of the Philippine Association of Multinational Companies Regional Headquarters Inc., said the incentives given to export-oriented enterprises and the after care services of PEZA are the country’s best selling points.
“We would like this regime to continue and we support PEZA as an institution,” Ilagan said.
Representing the Joint Foreign Chambers, John Forbes said that in their survey on TRAIN 2, Americans and other foreign chambers said they would reduce employment, hold off expansion and perhaps leave should the PEZA incentives get overhauled.
“You cannot expand if you cannot predict your future. With uncertainty over how the GIE would be replaced you go elsewhere that’s why the country’s foreign direct investments are down,” Forbes said.
Rosette Carrillo, director of the Confederation of Wearable Exporters of the Philippines, said they were concerned of their workers that they trained for 25-35 years producing high-end products for global brands.
Carrillo said that a mere percentage point in cost differential would be a big issue among companies in this labor-intensive garment industry. He noted that one company that is producing high-end apparel for Japan has advised its buyers to move to Vietnam because of one percent difference in cost.
“We are not talking for ourselves, but the impact on labor,” she said. There are 150,000 people working in the apparel sector alone, and 27,000 in the leathergoods sector.
“These are footloose industries so they can migrate easily but we want them to stay for our workers, so we need for consistency in our laws.”
The groups also noted the very attract tax incentive packages announced by Thailand and Indonesia to take advantage of investments relocating to ASEAN countries because of the US-China trade war.