Fiscal incentives under the Trabaho Bill
By now, everyone is familiar with the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, the second phase of Republic Act (RA) 10963, or the Tax Reform for Acceleration and Inclusion (Train) Law. The Trabaho bill started out as House Bill (HB) No. 8083, which the House of Representatives approved on third and final reading last Sept. 10, 2018.
Similar to its sibling, the first phase of RA 10963, Train 1, the Trabaho bill has had a polarizing effect on taxpayers. On the one hand, the bill aims to reduce the corporate income tax rate from 30 percent to 20 percent (yay!); on the other hand, the bill proposes to remove fiscal tax incentives currently enjoyed by companies registered under The Special Economic Zone Act of 1995, RA 7915, and other related laws (groan).
Specifically, the Trabaho Bill aims to remove the 5 percent gross income tax (GIT) incentive currently enjoyed by companies registered under the Philippine Economic Zone Authority (PEZA). Companies who qualify under the 5 percent GIT regime are subject to the 5 percent GIT in lieu of all national and local taxes, including local business taxes. Asked to explain why the 5 percent GIT incentive has been removed under the bill, Finance Undersecretary Karl Kendrick Chua explained that multinational entities abuse transfer pricing arrangements between related parties, by booking revenue in companies enjoying fiscal incentives, such as the 5 percent GIT.
Since its approval at the House of Representatives, several sectors have voiced their displeasure of the bill, and at the forefront is the PEZA Director General (DG) Charito Plaza. DG Plaza has consistently voiced her opposition with the Department of Finance (DoF) on the planned removal of the 5 percent GIT. Lately however, DG Plaza’s talks with the DoF team has come to an impasse. With no view in sight for a positive settlement with the DoF, DG
Plaza has decided to bring the matter directly to President Duterte. “Enough of the scolding. Enough of the bullying from other leaders of the government to keep our mouth shut. I am now very vocal to speak out to the President,” she said.
And it is not only DG Plaza that yearns to be heard on this issue: Japanese firms in the Philippines, specifically those registered with the PEZA, are eager to voice out their concerns on the disadvantages if the PEZA fiscal incentives are removed. One of the advantages that have convinced Japanese firms to invest in the Philippines, is the presence of fiscal incentives. With the looming possibility of the removal of the fiscal incentives, Japanese firms are seriously thinking about the viability of retaining their investments in the Philippines. In the hope that the plight of local Japanese firms will be heard, Japanese Ambassador Koji Haneda had this to say: “We hope that their inputs will be accordingly considered in the discussion of the Trabaho bill.”
Hoping to find a solution that would be beneficial to all parties, DG Plaza has suggested to an increase of the GIT incentive, from 5 percent to 7 percent, and/or setting a period during which the GIT incentive may be enjoyed. “We can increase it to 7 percent. We have been consulting our locators. They are amenable to increase it to 7 percent,” she said. Note that under the 5 percent GIT regime, 3 percent is allocated to the national government, while the remaining 2 percent goes to the city or municipality where the economic zone is located.
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