By Charmaine A. Tadalan, October 13 2019; Business World

Image Credit to Business World

A TRADE official said his worst-case scenario for job losses resulting from incentive rationalization is 900,000, assuming a 100% pullout of manufacturing locators from economic zones.

The job loss estimate, based on the scenario of a total manufacturing investor pullout, is 200,000 more than the projection of the Joint Foreign Chambers in the event incentives are rationalized under the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA), in its current form.

The Department of Finance (DoF) said in late September that CITIRA will ultimately create 1.5 million new jobs due to its corporate tax-reduction provisions, which it said will encourage expansion.

The large variance in estimates reflects the contentious nature of CITIRA, with the Philippine Economic Zone Authority (PEZA) waging what amounts to be a rearguard action against the legislation. PEZA regulates economic zones and the grant of incentives and counts locators as its main constituency.

Trade Assistant Secretary Angelo B. Taningco made his projection at a technical working group hearing on Oct. 10, acknowledging that CITIRA will likely lead to job displacement.

“Assuming a hundred percent pull-out of manufacturing firms, under PEZA, this could lead around 900,000 job losses,” Mr. Taningco told the Senate Ways and Means TWG panel.

Mr. Taningco said a semiconductor company, which he did not identify, projected a 20% head count reduction upon enactment of the bill.

“Just an example, one semiconductor company that has 220,000 employees would estimate labor displacement of about 20% or around 4,400 workers, given the expected effect of the CITIRA to their operating profit,” he said.

Mr. Taningco said the contentious provisions include the transfer of the functions of the Investment Promotions Agencies (IPA) to the Fiscal Incentives Review Board (FIRB), removal of the 5% gross on income earned (GIE)-and limiting the availment period for income tax holidays to five years.

As such, the Department of Trade and Industry (DTI) proposed amendments to the current version of the CITIRA legislation in order to mitigate job losses and attract investment.

The DTI recommends the retention of the incentive-granting functions of the IPAs, such as PEZA and the Board of Investments (BoI), and allow the FIRB to approve projects with a $3 billion threshold.

The TWG also proposed to retain the 5% GIE to currently registered enterprises if they export 70% of their output or employ 3,000 workers directly, while offering a 7% GIE on “new expanding projects” of currently registered enterprises involving investment of at least $1 billion or 3,000 direct employees, valid for three years.

He added that the legislation needs to “provide duty-free importation of raw materials for those registered export projects that are directly needed by exporters and finally, a VAT zero rating to those indirect exporters whose products are being used to form a final exportable item.”

CITIRA calls for the gradual reduction of corporate income tax to 20% by 2029 from the current 30%; and the removal of redundant fiscal incentives. Among others, it will grant up to five years of incentives, removing the perpetual grant of 5% GIE and limiting the income tax holiday.

The measure, which forms part of the comprehensive tax reform program, was among the legislative agenda items laid out by President Rodrigo R. Duterte in his fourth State of the Nation Address (SoNA).

He also urged the passage of measures to increase the excise tax on alcohol products and electronic cigarettes, centralize the property valuation and assessment system and simplify the tax structure for financial instruments. All such measures have been passed in the House on final reading, and are either at the committee level or pending plenary action in the Senate.

The government has so far signed Republic Act No. 10963, which slashed personal income tax rates and increased or added levies on several goods and services; RA 11213, the Tax Amnesty Act, which grants an estate tax amnesty and amnesty on delinquent accounts left unpaid after final assessment; and RA 11346, which will gradually increase excise tax on tobacco products to P60 per pack by 2023 from P35 currently. — Charmaine A. Tadalan