Taxation by LGUs emerging as a key TRAIN concern

ECONOMIC zone investors want to continue being exempt from local government taxes, amid plans to modify the investor incentives regime as part of the second tax reform package, a request which the government has promised to review.
In the meantime, it will retain the One Stop Shop system for investors to help the latter in dealings involving the permit process with local government units (LGUs), the Department of Finance (DoF) said.
Economic zone locators have asked the DoF and Congress to continue shielding them from local government taxes.
Finance Undersecretary Karl Kendrick T. Chua told reporters on the sidelines of a conference yesterday that he is “always open to ideas and suggestions,” adding that the DoF will review the investors’ request.
He said, however, that the government will retain the One Stop Shop Centers attached to investment promotion agencies, which will continue to help businesses processing their respective permits with other national government agencies as well as LGUs.
“We are not changing the One Stop Shop. We are amending the incentives, not the process and procedures. The One Stop Shop of PEZA (Philippine Economic Zone Authority) will remain and that is something we think is good, and will continue,” Mr. Chua said.
According to the Special Economic Zone Act of 1995, a one stop-shop center is mandatory in all ecozones to facilitate the registration, licensing and issuance of permits to locators.
Currently, locators enjoy a 5% gross income earned tax in lieu of all other national and local taxes.
The second package of the tax reform program aims to replace that scheme with a preferential 15% tax on net income while removing the “in lieu” provision, as it undermines the autonomy of LGUs to impose their own taxes.
Semiconductor and Electronics Industries in the Philippines Foundation, Inc. and the Philippine Association of Multinational Companies Regional Headquarters, Inc. are among the business groups that are seeking to remain shielded from LGU taxes, while others are pushing for maintaining the status quo.
Asked whether the DoF will move to retain the “in lieu” provision, Mr. Chua said: “We are in discussions on all proposals but we’re reviewing them… we’ll study it seriously.”
“Everything is possible but we think our proposal is better. But we will see,” he added.
Mr. Chua said PEZA will remain the main liaison between investors and LGUs.
“PEZA can still implement whatever the LGUs want to be implemented. Instead of businesses talking to each and every LGU, the businesses can continue talking to PEZA and the PEZA will coordinate with other offices to simplify the process,” he said.
Mr. Chua also noted that with the passage of the Ease of Doing Business Act, businesses can expect streamlined government processes.
Aside from replacing the preferential rate, the second package of the tax reform program hopes to withdraw some “redundant” incentives, while retaining those consistent with the government’s medium-term Strategic Investment Priorities Plan (SIPP) to be administered by the Fiscal Incentives Review Board (FIRB), while capping them for five years.
It also proposes to reduce the corporate income tax rate from 30% to 20%, subject to certain conditions.
Mr. Chua also disputed PEZA’s claim that the drop in approved foreign investment pledges was due to uncertainty generated by reforms to the corporate incentives regime.
He said that approved investment pledges do not necessarily determine the actual foreign direct investment inflows.
He said that investment pledges typically fluctuate, with tax reform not the only reason for the variation in approval levels. — Elijah Joseph C. Tubayan