SPEECH OF SECRETARY RAMON LOPEZ AT THE
SENATE PUBLIC HEARING FOR THE CITIRA LAW
SEPT. 24, 2019, GSIS Building
Thank you, Madam Chairperson and good morning everyone. This would be very quick since our Undersecretary Perry Rodolfo made the official presentation in the first hearing. Let me just support the statements made.
First of all, we fully support the objectives of the CITIRA and the CITIRA itself. There are just certain provisions that we wish to fine-tune, and this is what we’re working on with the Department of Finance, being the initial proponent of the tax reform over, basically, the income tax rate and the modernization and rationalization of fiscal incentives.
We fully subscribe to the basic principles of having time-bound incentives is really aligned to the principle that any support we give to any group is like an infant industry argument should be time-bound. Because after which, the support should stop, and the companies will have to fly on their own. That’s the reason why the time-bound aspect is important.
It has to be performance-based, focused, and transparent. We welcome also the removal of the nationality and export bias in the incentives. Because we are in a different regime. The tariff rates have really gone down across nations and it is important to attract investments, we have to make them produce here rather than elsewhere and export back to us. That’s why we have to make our incentives with no bias to nationality and exports.
To be specific, Madam Chair, of course we support the reduction of the corporate income tax rate from 30% to 20% and to make it revenue neutral, we are also supporting the rationalization of fiscal incentives. But our negotiation or discussion, which I’m also raising to the Senate, is on how we can soften the landing. For those existing locators, and this has been a problem is several consultations with them, of course any new reform or any change in tax policy will have to have a transition period. And the transition period that we’re thinking of, Madam Chair, is from the currently-proposed 2-5 years, we would welcome a change to at the minimum of 5 years to hopefully a 10-year period.
The basic reason is that as we transition to the removal of incentives for those existing locators, for those enjoying incentives for more than 30 years, and it’s really time to cut the incentives. We were hoping that by that time, the tax rates, which is the other part of the reform, would have gone down also. In ten years, we would already expect a 20% income tax rate. By that in place at that time, we hope to have a softer transition from what they will be benefiting from in that 5% GIE to even an increase in GIE to moving to a Corporate Income Tax Rate.
To be able to manage that, Madam Chair, we would also request a subsequent adjustment to the GIE, the Gross Income Earned. We are also looking into income implications. Upon consultation, we realized that some locators maybe open to a higher GIE as long as we can lengthen the transition period. And the higher GIE, Madam Chair, instead of 5% GIE, maybe we can adjust it to 7% or even 8% GIE. Just so we can buy some time with a transition period as short as 5 years and as long as 10 years.
Other considerations, Madam Chair, is for footloose industries or those that will quickly change their production locations, instead of putting it here in the Philippines. We might lose jobs if they transfer to another country. For this reason, we can also select companies who are 90% to 100% export-oriented, employing over 3,000 jobs for them to have a longer transition period. In other words, those companies can have a transition period of anywhere from 5 years to 10 years.
The next point, Madam Chair, is on the structure of the FIRB [Foreign Investment Review Board]. FIRB can be set as an oversight body wherein it can review, assess, and veto certain approvals. At this point, we can support that. As long as we can leave the approvals at the IPAs [Investment Promotion Agencies]. Because the number of applications coming in and being evaluated, this will be very numerous if we follow the proposed approval system at the FIRB level. Let’s keep it at the IPA-level and have the FIRB as an oversight for big projects.
Those are just the quick proposals, Madam Chair.