Gov’t curbs tax perks of ecozone firms

Unrelated income tax generated by export industries inside the special economic zones are not qualified for the five percent preferential gross income tax rate applicable to export-oriented firms.

This ruling was made by the Department of Finance (DOF) which said that export enterprises are now required to pay the full 32 percent corporate tax on income generated by unrelated businesses.

Under the government’s incentive program, export industries located in special economic zones are exempted from paying the full 32-percent corporate income tax.

Instead, they pay a five percent preferential rate on income generated by their primary business as well as related or auxiliary businesses.

Finance Undersecretary Cornelio Gison, however, said these companies also generate income from unrelated businesses such as leasing and these would not be qualified for preferential tax rate.

Gison said covered by the DOF ruling are all enterprises located in the export processing zones of the Philippine Economic Zone Authority, Subic Bay Freeport, Clark Special Economic Zone and the Philippine Veterans Industrial Development Corp.

He also said the DOF is about to issue a ruling that would plug another loophole in corporate taxation and prevent companies from avoiding the tax on capital assets.

"The DOF wanted to differentiate between capital and ordinary assets which corporations have been shuffling around in order to avoid paying the six percent final tax on capital assets," Gison said.

Ordinary assets, Gison explained, are covered by a six percent creditable withholding tax that corporations could deduct from their other taxes.

"We want to plug the loophole because some companies use this for tax avoidance," he explained.

"Only assets that were directly used in trade or business could be classified as ordinary assets and all other assets are considered capital assets and therefore covered by the six percent final tax," Gison added.