PEZA proposes CITIRA enhancements

MANILA, Philippines — The Philippine Economic Zone Authority (PEZA) is proposing several enhancements to the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill.

These include allowing investment promotion agencies (IPA) to continue to hold the power to grant incentives, keeping the payment of tax on gross income earned incentive for ecozone locators and developers, as well as tax exemption for spare parts of capital equipment used by firms registered with the agency. 

Documents from the PEZA showed among the agency’s proposed enhancements to the CITIRA is to continue to allow IPAs to grant tax incentives to registered enterprises instead of giving this power to the Fiscal Incentives Review Board to be chaired by the Finance Secretary. 

The CITIRA bill, approved on third and final reading at the House of Representatives, seeks to bring down the corporate income tax (CIT) rate from 30 percent to 20 percent over a 10-year period and rationalize incentives being given to investors. 

Part of the proposed changes in the incentives system is to remove the payment of five percent tax on gross income incentive in lieu of all taxes by PEZA-registered firms after their income tax holiday (ITH) period expires. 

Apart from allowing IPAs to continue to grant incentives, PEZA is also proposing that presently registered enterprises given incentives by IPAs be entitled to the same perks until the expiration of their contracts. 

In addition, PEZA wants registered export enterprises operating in economic zones to be allowed to continue to pay a higher seven percent tax on gross income in lieu of all national and local taxes except for real property tax owned by developers, after using up their ITH. 

For exporters of garments, apparel, textile, leather goods, and footwear, as well as economic zone developers, the PEZA wants them to continue to enjoy the payment of five percent tax on gross income.

At present, PEZA-registered firms pay a five percent tax on gross income when their ITH period ends.

PEZA likewise wants export enterprises registered with the agency to have the option to pay the reduced CIT after their ITH period ends. 

Also part of the enhancements being pushed by PEZA is to exempt not just capital equipment imports from customs duty and value-added tax (VAT), but to include imports of spare parts of the capital equipment, as well as tools, supplies and other materials directly used in the registered activity by registered enterprises as well.

“PEZA’s CITIRA position is a result of consultation with the PEZA Board and industry associations,” PEZA director general Charito Plaza said. 

She said among the industry associations consulted by the PEZA are the Joint Foreign Chambers, Semiconductor and Electronics Industries in the Philippines Foundation Inc., Philippine Ecozones Association, Information Technology and Business Process Association of the Philippines, and the Confederation of Wearable Exporters of the Philippines.

While the PEZA board which has Trade Secretary Ramon Lopez as chairman and Plaza as vice chair reached a unanimous decision to support the CITIRA during a meeting in October last year, the PEZA has decided to come up with proposed enhancements to the bill to address concerns raised by firms.

Industry associations have raised concern on the proposed changes in the incentives, estimating 700,000 job losses if the CITIRA is implemented in its current form. 

Aircraft maintenance repair and overhaul (MRO) service provider Lufthansa Technik Philippines has also aired its concern on the bill, calling on government to exempt from duties and VAT imports of spare parts used by MRO providers as well instead of just providing the benefit to imports of raw materials.