Lopez warns: Firms to take a hit in TRAIN Package 2

By Bernie Cahiles-Magkilat | Published March 1, 2018, 10:01 PM

Trade and Industry Secretary Ramon M. Lopez has admitted that some companies and individuals will be hit as the government rationalizes tax incentives to investments under Package 2 of the Tax Reform for Acceleration and Inclusion (TRAIN).

“As we rationalize, it is unfortunate that there will be companies or individuals that will be hit but this is exactly the necessary corrections to spread more evenly the gains and remove the years of biases and make incentives more strategic,” said Lopez as Congress will soon deliberate on the Package 2, which calls for the reduction of corporate income tax on reduced tax perks to investors.

The government seeks to make tax incentives to investors time-bound, more performance based, relevant and focused on strategic sectors.

Left with no choice, the Philippine Economic Zone Authority, which administers tax  incentives to export-oriented investments, is now amenable to capping their 5 percent tax on gross income earned (GIE) that its registered enterprises enjoy perpetually. The GIE is enjoyed by PEZA enterprises after exhausting the income tax holiday incentives of 4-8 years.

PEZA Director-General Charito B. Plaza said that their initial proposal is to have special tax incentives packages for basic industries that are not yet here like steel manufacturing; for basic crops such as rice, coffee, corn; and another package for investments on industries that will develop the countryside.

“It is okay to cap our GIE, but we will be asking for a transition period,” said Plaza.

Initial proposal by the government is calling for a limit on PEZA incentives to a total of 10 years. There is also a plan to shift the 5 percent GIE into 15 percent tax, but on net income earned instead of gross income.

PEZA, however, has opposed plans to increase exports requirements of its registered enterprises to 90 percent of total sales from the current 70 percent. This means that PEZA companies can only sell up to 10 percent from the current 30 percent.

Plaza explained that manufacturers would also like to access the local market because there is an attractive market of more than 100 million. Instead of increasing the exports requirement, Plaza said, “it should be the other way around.”

“This is a consideration so that investors are able to tap local market also,” Plaza said.

Plaza said that a technical working group among the investment promotion agencies of the government are meeting to agree on their incentives proposal.

Lopez, who is chairman of both PEZA and the Board of Investments (BOI), has assured that they always look after the concern of investors and have presented positions in many fora when it comes to investment incentives in the ongoing tax reform to ensure continued generation of more investments.

“But part of the reform precisely is to rationalize incentives to make it time-bound, more performance based, relevant and focused on strategic sectors,” he stressed.

The provisions in the draft tax reform package 2 included DTI BOI inputs that make incentives more relevant, even removes the bias against foreign investors and between export and domestic market orientation, he said. Income tax holidays will be continued as it is provided too by other countries as well, Lopez said.

In addition, more relevant incentives are now being considered such as double deduction on R and D, accelerated depreciation and Net operating loss carryover.

“We must benchmark our incentives to make them more competitive compared to other Asean countries,” he said.

Source: https://business.mb.com.ph/2018/03/01/lopez-warns-firms-to-take-a-hit-in-train-package-2/