02 June 2020 (Tuesday)
Taguig City – As Metro Manila transitioned to General Community Quarantine (GCQ), Philippine Economic Zone Authority (PEZA) Director General Charito “Ching” Plaza expressed again her appeal to Congress to maintain status quo for PEZA’s tax incentives as well as its power and authority on export-oriented investments in its 408 ecozones nationwide.
The PEZA Chief said that, “What we want to avoid is the closing down of companies in the country, or the reduction of their work forces which will lead to job loss for our people. We want to enhance our local manufacturing capabilities so that we will be able to complete our local supply chain amidst the pandemic and recovery from global crisis.”
Plaza reiterated that, “PEZA’s position and appeal to Congress is to maintain the status quo of its tax incentives granted under Republic Act 7916 as well as the retention of the power of PEZA. As the economy struggles during this pandemic, retention of incentives is the best guarantee we can give to our existing and new potential investors. Our incentives have already been tried, tested and proven over the years to attract investors and compete globally as attested to by industry associations and international institutions.”
Status quo of tax incentives will also preserve the jobs of over 6.5 million employed directly and indirectly by PEZA. In addition, PEZA also has 4,542 export companies in its 408 economic zones. PEZA’s current incentives are already tried and tested to be globally competitive.
Under the CREATE Bill, the transition period to new tax regime is maximum of 4 to 9 years. It means that the status quo will be kept for a maximum of 4 to 9 years for registered business activities to enjoy up to 5% of the gross income earned (GIE) incentive.
Meanwhile, according to Director General Plaza, “PEZA's proposal for a 5-year rehabilitation period is not referring to a transition or a shift to the CREATE Bill tax incentives package, but a rehabilitation period for our exporters.” According to PEZA' position on CREATE, PEZA's registered companies should have a status quo of 5 years of the current tax regime. There is a need to provide a minimum 5 years rehabilitation period for the ecozone export-oriented locators affected by the COVID-19 pandemic because they are businesses vulnerable to the effects of the pandemic that impacted global trade, exports, and imports.
Enhancement of Economic Stimulus
According to the PEZA Chief, “Instead of tinkering with current provisions of the tax incentives, PEZA calls for its enhancement so that present investors already here will stay.”
“Our economic stimulus package of our exporters and ecozone operators must be given at least 5 years reprieve to be able to rehabilitate or recover from the effects of the COVID pandemic,” said Plaza.
In addition, as Director Plaza puts it, “CREATE must be for the domestic enterprises, who must be provided for the first time a carefully studied, well-calculated, manageable and a sustainable rationalized incentives package and a lowered CIT, let us stick with that.”
Economists back PEZA’s position on CREATE
Well-known Filipino economists have also backed PEZA’s view that CREATE as is, is still wanting.
Dr. Ramon L. Clarete, a professor from UP School of Economics, believes that “CITIRA, if passed by the Senate in the middle of the crisis, may just compel locators to re-assess their location decisions. Some important businesses, like electronics which take up about half of the country’s merchandise exports, are portable. If the tax perks under this new reform are not those that would give the best return, they may just move somewhere else. Rather than help stimulate economic recovery, which is unlikely while COVID-19 is still around, the proposed law could cut down our export capacity in years to come and dampens economic growth.”
Dr. Ronald U. Mendoza, a Dean from the Ateneo De Manila University, also gave a statement saying that “The only strong and steady recovery will be an inclusive one. To the administration that passed the Universal Health Care Law and the 4Ps Law, please double down on these two reforms as your singular legacy. Settle the uncertainty faced by investors, workers, and the nation’s poor and low-income population by strengthening the safety nets and health system needed to weather this crisis. It is wiser course of action compared to introducing new complicated reforms (and new uncertainties) like TRAIN2/CITIRA/CREATE.”
Lastly, Professor Raul V. Fatella (Ret.) from the University of the Philippines said that “Since by the DOF’s own calculation, the CIT equivalence of the 5% GIT is about 17 % CIT, potential new foreign investors in PEZA in the next two years stand to pay a higher tax liability (25% GIT) than incumbents paying 5% GIT (17% CIT). Telling foreign investors how much you want them at the same time that you slap them with a higher tax liability does not make for “more fun in the Philippines.” COVID-19 has weakened our bargaining position; our vaunted fiscal health is leaking out fast.”