Companies may soon pay reduced income taxes for ten years, instead of enjoying income tax holidays (ITH) for four years, Trade Secretary Gregory L. Domingo said on Tuesday.

“Well, we’re looking at the possibility of offering a 10-year 15% tax on net income in lieu of ITH for BOI (Board of Investments)-registered firms,” Mr. Domingo told reporters at the sidelines of an event on Tuesday. Mr. Domingo was prompted to make this remark when he asked if the Trade and Finance Departments have already come up with a compromise on fiscal incentives to be given to firms.

Many companies that avail of the four-year income tax holidays “don’t make much money” before they are subject to the regular income taxes for corporations, Mr. Domingo said.

Corporations, in general, are taxed 32% of their net income under the National Internal Revenue Code of 1997.

“Prolonging the period but assessing them a very reasonable rate seems to be quite an attractive proposition,” Mr. Domingo said.

“Companies actually don’t mind paying taxes here as long as it’s a very reasonable rate,” he added.

The Senate Committee on Ways and Means, which tackles bills on the rationalization of fiscal incentives, have instructed the two departments to reconcile the privileges they prefer and come up with a compromise version.

Mr. Domingo said the consolidated version is already “95% complete”. “Basically, there was already a meeting of the minds but it’s just on the details,” Mr. Domingo said. “We’re still trying to consolidate.

“You agree in the concept but we have differences in its implementation,” he added.

At least three bills are pending before the Senate which seeks to rationalize fiscal incentives: Senator Cynthia A. Villar’s Senate Bill no. 35, Senator Ralph G. Recto’s Senate Bill no. 987 and Sen. Loren B. Legarda’s Senate Bill no. 2048.

Mr. Recto’s Bill seeks to grant either a 15% tax rate for a firm’s net income or 5% tax out of gross income earned (GIE). Ms. Legarda’s proposal, on the other hand, grants either a five-year income tax holiday, 5% GIE, or a 10-year 15% tax rate on net income. Meanwhile, Ms. Villar’s bill seeks to impose a six-year income tax holiday and a 15% income after the period or a 5% GIE tax.

Sought for comment, business groups had mixed views on the fiscal incentive being considered.

American Chamber of Commerce and Industry Adviser John D. Forbes said, “That would be good as an option”.

“Let’s try it for ten years and see how it works. We should not put at risk the success of PEZA (Philippine Economic Zone Authority),” Mr. Forbes said via text message.

European Chamber of Commerce of the Philippines Executive Vice-President Henry Schumacher, for his part, said it should be “seen in the light the income tax has to be reduced to remain competitive as an investment destination”.

“I still believe that tax holidays as being offered now are the better incentive,” he said in a text message.

Source: Business World, 11 September 2014