By Elijah Felice Rosales, October 18 2018; Business Mirror

Image Credit to Concept News Central

THE former chief of the Philippine Economic Zone Authority (Peza) on Wednesday warned the government it is bound to lose investment confidence if it removes the 5-percent gross income earned (GIE) incentive granted to economic zone firms.

For someone who captained the Peza for more than two decades, Lilia B. de Lima said the looming rationalization of tax incentives will really lead to investment and job losses. She argued the government is bound to make a huge mistake with its move to take away from locators some of their incentives.

“Economic zones were developed and maintained by the private sector. It is quite unfair that we, in the government, encouraged the private sector to develop economic zones, and then when the private sector responded, we are now removing their incentives,” de Lima said in a forum hosted by the Makati Business Club (MBC).

“The key to the success of the Peza was the 5-percent gross income earned incentive. Some manufacturers find this as the only reason to continue operating here in the country,” she added.

The Tax Reform for Attracting Better and High-Quality Opportunities, or Trabaho Bill as it has been dubbed by the House of Representatives, is the second package of the Duterte administration’s tax-reform measures. It has two components: on one hand, it will gradually reduce corporate income tax (CIT) to 20 percent from 30 percent, and on the other, it will overhaul the incentive scheme of the government.

Industry leaders have warned the proposed rationalization of tax perks will lead not only to locators moving out, but also to thousands of job losses, negating the avowed purpose of “Trabaho” bill to generate employment.

Breach of contract

De Lima noted the Constitution provides that the State must honor all of its obligations. She argued removing the locators’ incentives is a breach of contract, as these economic zone firms entered the country on the basis that they will be given incentives.

“Every bill passed by Congress should not impale obligation of contracts. They cannot change what was already given, such as incentives, because that is in violation of the Constitution,” de Lima explained.

“The companies that registered with the Peza signed an agreement with the government. They delivered on their commitments to bring investments and create jobs here, so the government should [honor its commitments], too,” she added.

For de Lima, it will be unwise for the government to continue with the rationalization of incentives. As it is, she said, it has already brought damage to the Peza even with the bill pending Senate deliberations. What more if it is enacted into law? she wondered aloud.

With the Trabaho bill on the table, the Peza suffered a 55.86-percent drop in investment pledges in the first semester to P53.07 billion, from P120.22 billion during the same period last year.

This fear of the rationalization resonated across all industries, as commitments to manufacturing fell 9.29 percent; information technology 13.66 percent; economic zone development 65.15 percent; and other sectors by nearly 100 percent. Industry leaders cautioned it could be brutal for the labor force, as investors are now signaling to lay off thousands of workers to cope with the impending removal of tax perks.