Taxes based on gross income earned (GIE) are a source of abuse and should be removed, according to Albay representative Jose Ma. S. Salceda. Last Friday, the House of Representatives approved on third and final reading the Corporate Income Tax and Incentives Rationalization Act (CITIRA), which removes the perpetual 5% tax on GIE enjoyed by economic zone locators, among other provisions. Salceda, who also chairs the House Ways and Means committee, described the GIE tax as the “mother of abusive transfer pricing,” which resulted in revenue loss of PHP295.8bn (USD5.7bn) between 2011 and 2017.
Salceda pointed out that GIE-based tax does not benefit firms with high gross margins such as service-oriented companies with no cost of goods sold, and unfairly disadvantages firms like those in the BPO sector that do not spend on raw materials and whose main revenue is job creation. According to Salceda, removing the GIE-based tax will boost the effectivity of the deductions-based incentives that promote job creation, infrastructure, research and development, workers’ training and the use of domestic products.