Philippines: PEZA nixes 5-year cap on incentives

  • A proposal to put a cap on incentives for a maximum of five years by the Department of Finance (DOF) under the second tax reform package is “unconstitutional” as it would violate government contracts, the Philippine Economic Zone Authority (PEZA) said.
  • PEZA manager for promotion and public relations Elmer San Pascual said the proposal would violate the agency’s existing agreements with its investors.
  • San Pascual said a number of its locators are hesitant to expand at the moment as “they fear the DOF’s Tax Reform for Acceleration and Inclusion (TRAIN) 2 which indicates the maximum five years (cap).”
  • “We cannot agree with that because we cannot legislate a law which will violate contracts, especially contracts of government,” San Pascual said.
  • “There is a provision in our Constitution of the inviolability of a contract. So this is a contract of government and in effect, removing (the incentives) after five years as the DOF wants, that will be violating our contract with our investors,” he added.
  • Under the second tax reform package, the DOF seeks to remove the five% gross income earned (GIE) which PEZA investors currently enjoy perpetually after companies exhaust their income tax holidays of four to six years.
  • The DOF, however, plans to give existing investors receiving the GIE tax between two to five years as transition period.
  • “Our contract with our investors states that as long as you are doing your registered activity with PEZA, you would continue to enjoy the five% GIE. That is perpetual. If they will legislate violating that contract, that is, we think and I personally think, is a violation of the Constitution,” he added.

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