SEIPI backs PEZA stand on perks

MANILA, Philippines — Electronics exporters are supporting the Philippine Economic Zone Authority (PEZA) in its stand to have separate incentives for export industries and domestic enterprises and to keep the tax perks of existing investors.

“SEIPI (Semiconductor and Electronics Industries in the Philippines Foundation Inc.) supports PEZA’s position to retain the current incentives and separate the incentives for domestic versus export industries like electronics,” SEIPI president Dan Lachica said in an email to reporters.

He said the group also welcomes Sen. Imee Marcos’ call to defer the rationalization of incentives under the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, as well as Sen. Ralph Recto’s proposal for a provision in the bill to allow existing investors to continue to enjoy their incentives.

While SEIPI supports the immediate corporate income tax (CIT) reduction under the proposed CREATE Act, it is concerned about the rationalization of tax perks.

CREATE, a repackaged version of the Corporate Income Tax and Incentives Rationalization Act, would quickly bring down the country’s CIT to 25 percent from the current 30 percent, considered the highest in Southeast Asia.

In addition to trimming the CIT, CREATE would introduce changes to the incentives regime to make the grant of tax perks performance-based, targeted, time-bound and transparent.

Under the bill, a transition period up to nine years would be given to registered business activities enjoying the five percent tax on gross income earned (GIE) incentive.

PEZA-registered firms pay the GIE in lieu of all national and local taxes after their income tax holidays have been used up.

In a letter to Sen. Richard Gordon dated Oct. 12, PEZA director general Charito Plaza appealed for keeping the incentives regime for exporters and having a separate system for domestic enterprises under the CREATE to allow the country to keep investments and jobs amid the pandemic.

Citing the results of the cost benefit study conducted by the National Economic and Development Authority (NEDA) pursuant to the Tax Incentives Management and Transparency Act, Plaza said PEZA-registered enterprises have contributed to the economy through investments, employment, exports and domestic sales.

She said based on the study, incentives have also increased production, investments, revenues and helped improve overall household well-being and reduced poverty.

In addition, Plaza said CREATE should be applied to the domestic market and not to exporting firms which operate differently and are efficienciently seeking investors competing in the global market.

As many firms are looking to diversify operations out of China, she said the Philippines might miss out on the opportunity to attract investors given the government’s move to introduce changes in the incentives system.

Earlier, Lachica said the group expects 38,000 direct and 266,000 indirect job losses in the sector in the first year of removal of incentives.

He also said companies may choose not to expand in the Philippines if there are no competitive incentives similar to those offered by Vietnam and other Southeast Asian countries.