Retain Peza incentives, foreign chambers urge

September 13, 2018 News

MEMBERS of the Joint Foreign Chambers of the Philippines said on Wednesday that although they support the government's move to reduce corporate income taxes, the incentives enjoyed by firms in areas under the Philippine Economic Zone Authority (Peza) should be retained.

In a press conference during the Arangkada Philippines forum, the American, Canadian, European, Japanese, arid South Korean chambers of commerce, as well as the Philippine Association of Multinational Companies Regional Headquarters Inc. (Pamuri), said the rationalization of incentives under the second package of the government's Comprehensive Tax Reform Program would have "negative effects" on foreign investors. 

That package, House Bill 8083 or the Tax Reform for Attracting Better and High Quality Opportunities (Trabaho) measure, seeks to reduce corporate tax from 30 percent to 20 percent by 2029, and rationalize tax incentives by making them performance-­based, targeted, time-bound and transparent.

 The bill—informally known as Train 2, after the Tax Reform for Acceleration and Inclusion Act that was implemented on January 1—also seeks to remove the 5­percent perpetual tax on gross income earned (GIE) being enjoyed by companies inside the ecozones. According to Canadian Chamber of Commerce of the Philippines President Julian Payne, they like to see corporate income tax reduced as "fast as possible/ as they believe it would attract more investments.

Citing that the Philippines exports products—mainly electronics from Peza zones—to Canada more than it imports them, he said that how these zones were managed must be looked at carefully "because if you make these less efficient, then you will see an adverse impact on exports.

 "On the other hand, if they" maintain their current status "in terms of incentives and other procedures, then you will encourage exports," he added. 

Pamuri Director Celeste Ilagan said a suryey conducted by her group after Train was implemented showed a slight contraction in the number of people employed by regional operating headquarters (ROHQs) because of the removal of the 15­percent'preferential tax rate, regarded as a "huge incentive" 

"With Train 2, there is [the] danger of losing another incentive— the 10­percent corporate income tax—and.. .we are doing all we can for the retention of privileges of the that the country will continue to be a good location for [them], she added. 

Speaking for the Korean Chamber of Commerce Philippines, Ki Suk Hahn, managing director of Yung Sung Industrial Phils. Inc., said the government should retain incentives that work.

Daniel Alexander, head of the American Chamber of Commerce of the Philippines (Amcham), echoed their sentiment and affirmed that Peza incentives do attract investors. 

"Peza itself brings such confidence to foreign investments, and it is really important to protect that [and] the integrity of Peza," he said. 

Naoto Tago, president of the Japanese Chamber of Commerce and Industry of the Philippines Inc., urged the government to maintain its competitiveness by continuing to provide incentives.

What the government needs is better infrastructure like airports, roads, and seaports, Amcham Executive Director Ebb Hinchliflfe said. 

"You have to attract people to come here to build and export more. You have to attract more people to invest here and...make them stay and continue to do exports. I don't think Trabaho does that We need to concentrate on [building] roads [and] seaports, and leave Peza alone," he added. 

Asked to comment on Trabaho and the foreign chambers' concerns, Sen. Sherwin Gatchalian, chairman of the Senate panel on economic affairs and energy, said he was open to retaining the 5­percent GIE, depending on the cost structure of industries.

"One of the things that we require" the Department of Finance to do is "submit to us the cost structure of major Industries," he added. 

Trabaho might have a negative impact on certain sectors, such as the semiconductor and the business process outsourcing industries, whose revenues, more or less, make up 25 percent of the country's gross domestic product (GDP), according to him. 

"[W]e don't want a scenario [in which] these industries" and their competitiveness would "be lessened. We want to continuously grow these industries," the senator said.