‘Walang forever,’ Pia Cayetano says of tax incentives for firms in ecozones

Senate Committee on Ways and Means chairperson Pia Cayetano on Monday said the Philippine government has been generous enough in providing the 5% special tax on gross income earned (GIE) to firms inside economic zones and that a sunset provision for such rate needs to be put in place.

During the interpellations for the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, Cayetano said the Philippines is the only country in the world offering this incentive without time limits.

"Tayo lang ang bansa sa buong mundo na nagke-claim na may forever ang GIE na ito. Tayo lang ang may GIE-based on gross income tax, sa iba po net. And then sa atin po, is in lieu of all other taxes," Cayetano said.

"Lamang na lamang na nga po sila sa ino-offer natin dahil wala hong nag-ooffer na GIE for an unlimited period. Wala hong ibang nagsasabi na ibang bansa na 'in lieu of all other taxes,'" she added.

Under the proposed CREATE, the 5% tax on GIE shall continue to be enjoyed for four to nine years by firms currently registered with the various Investment Promotion Agencies in the Philippines.

The economic team said this is "a generous compromise" for businesses that have been enjoying forever incentives, some for more than 40 years.

The CREATE bill seeks to increase the GIE tax rate to 10%.

Whimsical, capricious?

During the debate, Senate President Pro Tempore Ralph Recto presented the position of business groups that the Philippine government has "both the legal and moral obligation to maintain its commitment to current investors regarding their present incentives that enticed them in the first place to risk their investments in the country."

It further stated that maintaining the status quo would be a testimony that the country does not "capriciously and whimsically" change the rules in the middle of the game.

Cayetano maintained that there is no such promise of "forever" 5% tax on GIE incentive in existing contracts and forms which investors fill up.

"When I took on this CREATE, CITIRA pa noon, sabi ko patingin nga noong kontrata wherein nakasulat diyan na mayroon kang 5% forever and wala naman pong makapagpakita sa akin noon. It is a practice," she said.

"I would surmise that a businessman, a decent businessman or lawyer would know that this is subject to change... The fact that the power to grant and reduce taxes will remain with Congress, we can do that. Tanggap naman po nila ang power natin na 'yun," she added.

She also said that the business groups' description of the terms in the proposed corporate tax reform as "capricious and whimsical" was wrong.

"This was not done overnight. This was not done without consultation. This was not done without hearing. The view that they expressed to me finally before we went into a lockdown was that they want certainty and at this point, they want to proceed," Cayetano said.

Recto, for his part, said his position is to continue keeping incentives "as it is for exporters," given the current economic situation.

But Cayetano maintained that incentives should be time-bound.

"For exporters, the ones who are 100% exporting, they are the ones in the longest bracket sa transition ng sunset provisions natin. Nine years sila. So, again, 'yung sinabihan tayo na whimsical and capricious, nine years po ang ibinibigay natin para mag-transition sila," she said.

"When their incentives are over, and that is four to nine years from now, there is some misunderstanding that it is totally over for them. No, they are allowed to re-apply. So the sooner we pass it, the sooner they can continue with their current incentives, and the sooner the transition to new incentives provided by CREATE," she added.
 
The CREATE bill, seen as a crucial legislation to attract more investors amid the COVID-19 pandemic, also outrightly reduces the corporate income tax rate from 30% to 25%. The rate shall further go down to 20% in the succeeding years on a staggered basis.—LDF, GMA News