PEZA backs proposal to use gross income earnings as tax base

MANILA, Philippines — The Philippine Economic Zone Authority (PEZA) expressed support to President Duterte’s push for using gross income earnings (GIE) as tax base of companies which is seen more advantageous for tax collection.

“We in PEZA fully support such policy preference of the President. We are thankful that the President sees GIE as more rational and advantageous tax regime for collecting taxes from companies and investors in the country,” PEZA director general Charito Plaza said. 

During the inauguration of the Tumingad Solar Power Project in Romblon last week, Duterte said shifting to gross earnings or the amount of sales before any deductions as base for income tax of businesses or corporations would be advantageous for tax collection.

“There is no cheating when we go for the gross,” Duterte said.

The investment promotion agency is seeking to allow ecozone locators to continue to enjoy payment of tax on GIE but at a higher rate of seven percent under the proposed amendments to the Special Economic Zone Act, and to be excluded from the proposed second package of the government’s tax reform program.

As the proposed second package of the tax reform program or the Comprehensive Income Tax and Incentive Rationalization Act (CITIRA) bill would gradually lower the corporate income tax rate to 20 percent from 30 percent currently and change the incentives regime including removing the tax on GIE, the PEZA is pushing for keeping the incentive but raising its rate to a higher seven percent.

Under House Bill 3747 which seeks to amend the Special Economic Zone Act and strengthen the roles and functions of the PEZA filed by Cagayan de Oro Rep. Rufus Rodriguez, PEZA-registered firms would be granted a special preferred tax rate of seven percent on GIE, provided the companies would have option to immediately enjoy the seven percent on GIE instead of having income tax holidays (ITH).

At present, PEZA-registered firms pay a five percent tax on GIE in lieu of all national and local taxes after they have utilized their ITH.

PEZA locators can enjoy the ITH for six to eight years for pioneer projects, and four to six years for non-pioneer projects.

“GIE is one of its highlight incentives attracting investors, so it is very crucial because revenues paid to national and local government are deducted outright from the gross income of companies,” Plaza said. 

Through the payment of five percent tax on GIE, two percent is directly remitted to the local government, while three percent is given to the national government. 

Plaza warned the removal of the five percent tax on GIE would be a possible ground for corruption, leakages, as well as inconvenience as a different system would mean requiring investors to deal with various levels of bureaucracy for payment of taxes.