DTI wants longer transition period on gross income earned

The Department of Trade and Industry (DTI) is pushing for a longer transition period of 10 to 15 years for firms enjoying the gross income earned (GIE) incentive and performance-based grant of incentives under the second package of the government’s tax reform program.

Speaking at the Kapihan sa Manila Bay on Wednesday, Trade Secretary Ramon Lopez said while the DTI supports the Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) bill which would reduce the corporate income tax rate gradually to 20 percent from 30 percent, and rationalize fiscal incentives, the agency also proposes to address concerns raised by some investors, particularly those registered with the Philippine Economic Zone Authority (PEZA), on some provisions of the proposed measure.

“We are working out with DOF (Department of Finance) and the Senate, provisions on a longer transition period, as well as having a performance-based provision such that if there are high performing companies, we will continue to give them other support,” he said.

Amid concerns raised on the removal of the five percent tax on GIE paid by PEZA locators in lieu of all taxes after the end of the income tax holidays, he said the DTI is pushing for a longer transition period of 10 to 15 years.

Under the TRABAHO bill approved by the House of Representatives, firms enjoying the five percent tax on GIE incentive would be allowed to continue for two to five years, depending on how long they have been availing of the benefit.

The GIE is considered a crucial incentive given to firms which register with the PEZA.

Apart from the tax benefit, the GIE provides ease of doing business through PEZA’s one-stop shop for issuance of permits and exemption of locators from local government business permits.

Lopez said the DTI is also pushing for performance-based incentives wherein firms which meet a set of parameters in a particular year such as exporting 90 percent and above of its production, employing a certain number of employees and investing in the latest modern equipment would be granted lower income tax rate or other form of support the following year.

“If we can more or less assure innovative and modernized operations then, it deserves continuous support,” he said.

Lopez said he has discussed the agency’s position with PEZA and told the agency concerns raised by locators would be addressed.

While PEZA earlier said it wants the current incentives regime for locators to be retained, its director general Charito Plaza said late last week she is open to making the five percent GIE incentive enjoyed by locators time-bound if the rate would be raised to seven percent and the period for the incentive to be available would depend on the performance of the company.

“It is President Duterte’s wish also to have this tax reform. They (PEZA) should abide by that. They are government. We told them that. And if there are points to be addressed, we address it,” Lopez said.

He said the DTI backs the second package of tax reform as it is seen to benefit most businesses in the country.

“This is a reform that will benefit 90 plus percent [of businesses] especially, SMEs (small and medium enterprises)... These are the ones who will benefit in the lower corporate income tax rate from 30 percent to 20 percent,” he said.