By Bernie Cahiles-Magkilat
Trade and Industry Secretary Ramon M. Lopez was batting for a longer 5-8-year transition period to mitigate the impact on jobs as well as the setting of an investment threshold that the planned Fiscal Incentives Review Board (FIRB) can intervene in the grant of tax incentives to investors under the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA) Bill.
Lopez said this as he expressed optimism of the passage of the CITIRA Bill, the second package of the government’s comprehensive tax reform program after Senate Committee on Ways and Means headed by Senator Pia Cayetano conducted its maiden hearing recently on the proposed CITIRA Bill.
The CITIRA Bill seeks to remove the 5 percent tax on gross income earned (GIE) by companies located in economic zones in lieu of lower corporate income tax (CIT). Under the bill, the current 30 percent CIT would be reduced by two percentage points every other year to bring it to 20 percent by 2029.
“We have been discussing with the Department of Finance and there is openness in having a longer transition (from GIE to CIT) to take into account the time needed for companies to adopt to the new system,” Lopez said.
On the transition period, Lopez was batting for a minimum of 5-7-8 years for existing companies/investors with high exports of say 90 percent and above and employing 3,000 people. The maximum for those really export performers could be 10 years, he said. The DOF was earlier talking of a transition period of 2 years only.
He explained that while everybody supports the need to lower taxes, there is also a need to balance the reforms.
Lopez said he was assured of the openness of the DOF for a longer transition period from the GIE regime to CIT for companies that would qualify under the parameters that have yet to be finalized.
“We are working out on a mechanism. I am happy with minimum of 5 and maximum of 8 even if not 10 years that would be good enough,” he said.
By the time that the transition is over, the CIT rate would have been lower already. It is not yet final though what is the end date to bring down the CIT to the ideal level to be competitive with other ASEAN neighbors.
He stressed that the transition period would ensure the tax incentives to be offered to investors would still put the Philippines at par with the other countries considering the country’s higher cost of power, infra, logistics and wage while at the same time enable the government to earn taxes to help fund its massive infrastructure projects.
Already, the American Chamber of Commerce has warned of potential 700,000 in job losses once the current CITIRA Bill is passed.
With the longer transition period, Lopez said there would be minimal job losses. He said they would be doing a simulation to minimize impact on jobs.
On the role of the FIRB, Lopez said they are considering to put a threshold on investments that the FIRB’s approval is needed. They are looking at an investment threshold of $1 billion or $3 billion while the approval of the tax incentives for other projects with lower project costs may be relegated to the investment promotion agencies (IPAs) that the project proponent was seeking registration with for tax incentive purposes.
They are also consulting with the Philippine Competition Commission so as not to run counter with its mandate on corporate mergers and acquisitions.
Under the CITIRA Bill, the FIRB will act as an oversight committee over the granting of tax incentives to investors, which seek tax perks through an investment promotion agency such as BOI, the Philippine Economic Zone Authority, Clark Development Corp., among others.
The CITIRA bill aims to remove to remove redundant fiscal incentives that are being enjoyed by certain sectors such as the manufacturing and information technology-business process outsourcing (IT-BPO) companies.