CLARK FREEPORT — Even outside this tax-privileged freeport, the business sector is not in favor of the proposal to scrap tax perks in freeports and economic zones in fear of investments flight.
In a forum of the Capampangans in Media, Inc. (CAMI) here, Rene Romero, chairman of the Pampanga Chamber of Commerce (PamCham), expressed concern over proposals espoused by Finance Sec. Carlos Dominguez to scrap the tax perks and impose a 20 percent corporate tax all over the country, lower than the current 30 percent.
“If we do not honor past contracts with investors, especially foreign investors, they would fl y away and our reputation as investments destination would be seriously affected,” he said.
Romero noted that more neighboring countries are now competing for investments by offering tax incentives which have become a competitive factor.
He said the Pam-Cham’s position on Package 2 of the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which concerns corporate taxes, is similar to that of the Clark Investors and Locators Association (CILA)
CILA chair Dr. Irineo Alvaro has, however, expressed confidence that Congress would honor the government’s already signed contracts granting special tax privileges to investors in this and other freeports nationwide under Package 2 of the TRAIN Act.
He warned that otherwise, over 50 percent of investors in the freeport would move out and transfer to nearby countries.
“There’s still a Damocles Sword having over us and we have to be vigilant,” Alvaro said in an earlier forum with CAMI.
Alvaro said congressional committees have been holding hearings here to tackle proposals to apply without exception a lowered P20 percent corporate tax nationwide under Package 2 of the TRAIN Law, officially Republic Act No. 10963, against the position of his group.
The Lower House has changed the name of the Package 2 bill into Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO). In the Senate, it is SB 1906.
Investors here and other economic zones have been enjoying only a five percent tax on gross income earned (GIE), an incentive initially offered by the government to attract foreign and local investments after this former US military base was devastated by the eruption of Mt. Pinatubo and converted into an economic zone.
Alvaro said the country would lose face in the investments world by reneging on such contracts.
He expressed confidence, however, that Congress would adopt proposals of CILA and other groups from economic zones to at least reduce the corporate tax proposals to merely 12 percent for new investors while retaining the 5 percent GIE for investors with whom the government had already signed contracts effective for years yet to come.
Romero noted that businesses in the Philippines pay the highest corporate tax rate in the ASEAN region – 30 percent, compared to an average 22.5 percent rate in neighboring countries.
The Department of Finance (DOF) has maintained that “cutting taxes on corporations makes our businesses more competitive and that by lowering taxes, businesses will face lower costs and higher profit margins, potentially generating more employment and investment.”
The Lower House’s TRABAHO proposal will lower the tax rate paid by corporations by two percent every two years, settling on a final tax rate of 20 percent by 2029. On the other hand, SB 1906 will immediately bring the tax rate down to 25 percent in 2019.
While big corporations are to benefit from a huge tax cut, a lower tax rate would also benefit 90,000 small and medium enterprises compared to the 4,000 large businesses in the country., the Department of Trade and Industry (DTI) has said.
The DTI said, however, that a main drawback to lowering taxes would be a substantial loss in government revenue. The DOF has estimated that lowering the corporate income tax rate from 30 percent to 29 percent in 2019 would result in P26 billion of uncollected revenue.