Pasay City – As it nears the end of 2020 and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill remains pending for passage, the Philippine Economic Zone Authority (PEZA) and industry stakeholders consistently persist in their united position on the bill which is to exempt and retain status quo the tax incentives for export-oriented companies and to implement the said corporate tax reform to domestic-oriented enterprises only.
“Indeed, PEZA and industry leaders support the government’s efforts to reform corporate tax regime. However, the context of its application is best to be applied to domestic enterprises and not altogether with export-oriented industries which compete in the global market,” said PEZA Director General Charito “Ching” Plaza.
Plaza expressed gratitude to lawmakers who listen to the pleas of the industry associations, chamber of commerce, foreign chambers, and labor groups who call on the retention of PEZA’s powers to administer its own globally-competitive and tried and tested tax incentives. “We hope the Senate and the House of Representatives in the future bicameral conference for the CREATE bill will heed to the call of export-oriented industries that employ thousands of Filipinos, bring investments and export-incomes, and contribute to the country’s economic prosperity,” she said.
Why CREATE for domestic enterprises
Plaza explained that “CREATE will be more advantageous to the domestic enterprises which need to experience tax incentives and be incentivized with their market. It is high time for the domestic enterprises to benefit from the reduction of the corporate income tax and enjoy for the first time incentives in rationalized manner.”
She added, “This will maximize the micro, small, and medium enterprises (MSMEs) production, manufacturing export capabilities, complete supply chain, and encourage exporters to minimize import dependence.”
This is also backed by the initial findings of the National Economic and Development Authority (NEDA) cost-benefit analysis, which vindicated PEZA’s globally-competitive, tried and tested tax incentives that it indeed generates more investments and contribution to the economy.
One of the findings of the said CBA on economy-wide impact is that “Tax incentives increase domestic production."
“We have to empower, capacitate, and enrich economically first the LGUs, our farmers, MSMEs, and our people in general to contribute in enhancing our idle land assets and available rich natural resources,” noted the Director General.
She noted that the advantage of applying the new law of tax incentives only to the domestic enterprises is that in terms of risk to the economy, it will not be large threat because they don’t necessarily leave the country and transfer large capital.”
The PEZA Chief underlined, “In the midst of continuous natural and man-made disasters going on in the country and in the world, we appeal for crucial consideration and for the wise judgment of our lawmakers to pass an exporters investor-friendly CREATE law to put stability in our investment and economic policies.”
Status quo for export enterprises
On the other hand, applying the CREATE law to export-oriented industries is disadvantageous because its context of competing in the global market must be considered. “If investors see changing incentive policies that will affect cost and ease of doing business, they can transfer huge capital and operations that will translate to job losses to Filipinos and revenues of host LGUs of the ecozone locators,” underlined Plaza.
Underlying PEZA’s clamor for the retention of its tax incentives is anchored on the mandate to generate investments, jobs, and export-incomes for the Filipino people. The export market in the international scene is a huge and competitive arena where exporters around the world compete.
“The Philippines is not only the game in town. We compete even with our immediate ASEAN neighbors who adjust their incentives amidst the pandemic in order to retain or attract new investors,” said Plaza.
“We must distinguish between foreign and local market and enterprises. Exporters should not be equated with domestic companies that only produce for the local market. The two are different in context.”
“The exporters compete in a global market and face tougher competition from international competitors, while domestic market only focus on local consumers and few competitors. As such, the domestic enterprises may not necessarily leave and bring out their capital from the country if they close down. Yet, exporters closing and leaving Philippines have big impact on our people’s jobs and revenue generations,” she added.
In terms of tax incentives, it is a crucial factor for export-based investors as part of ease and cost of doing business. Investors compare tax incentives in different countries. However, PEZA’s incentives and brand of service in one-stop-shop and non-stop shop are internationally renowned already and globally-competitive.
This has been recently noted by the US Department of State in its 2020 Investment Climate Statements for the Philippines, saying that “The business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors.”
On 02 June 2020, the top 24 economists in the Philippines also released their position regarding CREATE wherein they also suggested that “the status quo for PEZA must be maintained, pending the enactment of a consolidated incentive act.”
As they explained, “Enterprises in export zones under the Philippine Export Zone Authority will suffer from CREATE since their privilege to pay the gross income tax of 5% will expire after 4 to 9 years. In addition, CREATE proposes a flexible special incentive scheme that replaces rules by discretion. PEZA enterprises and foreign investors do not welcome this change from rules to discretion, which is fraught with risk and uncertainty. And we simply cannot afford to add more uncertainty during this fragile recovery period from the COVID-19 pandemic.”
No compelling reason to tinker PEZA’s incentives
With this, the Director General noted that, “There is no need to tinker with our tried and tested incentives as this is the key to keep them in our country despite our lacking efficiency factors and present uncertainties.”
In support of the call, Philippine Ecozones Association (PHILEA) Francisco Zaldarriaga said that “The biggest danger here is the number of jobs lost and the last time is 1.4 million jobs at stake (…) We are sensing the reduction of workforce that is already happening. So, it does not make sense to remove this one ingredient that keep these companies here.”
Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) President Dan Lachica also added “We would rather have the incentives retained for those investors meeting the performance criteria, putting a transition period puts additional investments at risks especially if operating costs are not competitive with Vietnam, Thailand and Malaysia.”
The CREATE Bill remains one of the priority bills of the government this 2020. The Senate deliberations will continue before the break on December. #