TRAIN 2, incentives and PEZA’s push

DIRECTOR General Charito Plaza of the Philippine Export Processing Zone Authority (PEZA) gives updates to officials and’ representatives of Cebu’s IT-BPM sector about PEZA’s actions to address concerns about TRAIN 2.
Contributed photo

PEZA chief assures Cebu IT-BPM players, execs of strong lobby to retain incentives

Cebu’s information technology and business process management (IT-BPM) sector was assured that the incentives they were currently enjoying would be retained even with the passage of the second tax reform package.

Or at least, the Philippine Economic Zone Authority (PEZA) will fight hard for retaining the incentives.

PEZA Director General Charito Plaza made this assurance during a recent meeting with officers of the Cebu IT-BPM Organization (CIB.O) and some industry players to discuss issues in relation to the proposed Tax Reform for Acceleration and Inclusion (TRAIN) 2.

“The main message of DG Plaza is that she stands by her support on the retention of incentives for all PEZA-registered companies. She’s lobbying to make PEZA exempted from the TRAIN 2,” CIB.O Managing Director Wilfredo “Jun” Saa told Cebu Daily News.

“We are optimistic that she will really fight for the interest of the IT-BPM industries as well as other PEZA-registered companies,” he added.

The meeting, which was held on Thursday (July 12) at the Sykes office in Cebu City, was attended by representatives from around 50 IT-BPM companies based in Cebu including Sykes, Accenture, Amazon, Cognizant, Eperformax, JP Morgan & Chase, Lexmark, QBE and Optum, among others.

These companies were eager to know updates about the proposed TRAIN 2 which the Department of Finance (DOF) is pushing as a way to “rationalize” and “modernize” the government’s incentives to make them responsive, relevant, and effective.

Plaza, who was optimistic about the chances of their push to retain the incentives, told Saa and those who attended the meeting that PEZA even recently assured a big investor in China , whom they planned to bring into the Philippines, specifically in northern Mindanao to put up a steel manufacturing plant.

Plaza said she also assured the same Chinese investor that incentives would remain once they set up shop in the country.

Currently, the PEZA grants a package of incentives to locators in PEZA-registered companies that include income tax holiday of a maximum of eight years and a perpetual 5 percent tax on gross income earned (GIE), zero VAT (value added tax) on local purchases and up to 30 percent of local sales, among others.

The proposed TRAIN 2, however, sought to overhaul these incentives to make tax perks “more equitable and effective in creating jobs, industry development and attract more foreign direct investments and generate more revenues” to fund the massive “Build, Build, Build” infrastructure of the Duterte administration.

As a tradeoff, the TRAIN 2 also seeks to gradually reduce corporate income tax (CIT) rates to no less than 25 percent from the current 30 percent which is one of the highest rates in Asia.

According to Saa, another justification being pushed by the PEZA in convincing government to exclude the removal of incentives for PEZA-registered companies is the fact that these incentives return to the Philippine economy at a much higher rate.

“DG Plaza said that for every peso in taxes that are foregone through the incentives, it brings back around P11.60 in return to the government in the form of expenses, income or salaries, taxes, and exports. It (incentives) is really worth keeping,” Saa said.

The IT-BPM industry is also a major provider of employment in the country.

Saa said that based on latest figures, the IT-BPM industry had employed more than one million people all over the country.

In Cebu alone, the figure is at 150,000.

Plaza also said that she had also talked with several senators and congressmen to get their support for PEZA’s push to retain the incentives for PEZA-registered companies.

She also said that they got the commitment and support of their push from the Union of Local Authorities in the Philippines, Inc. (ULAP).

She said that the ULAP had approved a resolution “strongly urging” President Rodrigo Duterte and the Congress to exempt PEZA from the proposed TRAIN 2 in order to “preserve the authority of PEZA to administer incentives under its charter and to sustain the momentum and effectiveness of its ongoing investments promotion campaign.”

The resolution quoted a report by the National Economic Development Authority (NEDA) that as of December 2017, PEZA’s 4,147 locator-enterprises with cumulative investments worth more than P3.65 trillion had actually created 1.42 million direct employment.

It has also produced as much as US$706.29 billion exported output which accounted for 64 percent of total Philippines Commodity Exports and 80 percent of total Philippines Service Export.

NEDA also reported that in 2015 alone, the amount of P235.3 billion – P66.6 billion in tax expenditure plus P168.71 billion in VAT (value-added tax) – that the DOF estimated the country has given up as fiscal incentives to PEZA locators, have in fact been returned to the country’s economy 14 times as much or in the aggregate amount of P3.317 trillion.