Finance Secretary Carlos Dominguez III has thanked anew the House ways and means committee chaired by Albay Representative Joey Salceda for its prompt action on the proposed corporate income tax (CIT) and incentives reform package, which President Duterte himself has said would benefit small and medium-scale enterprises (SMEs).

Dominguez expressed the hope that the House of Representatives and the Senate would soon give their final approval to this second package of the Comprehensive Tax Reform Program (CTRP) now known as the proposed Corporate Income Tax and Incentives Reform Act (CITIRA), to help bring the Philippines closer to its goal of attaining the coveted “A” investment grade credit rating in two years’ time.

More importantly, passing the CITIRA bill will make the Philippines more attractive to investors by gradually lowering the corporate income tax (CIT) rate from 30 to 20 percent, and rationalizing the system of granting fiscal incentives to companies, Dominguez said.

The CITIRA, as proposed by the Department of Finance (DOF), is also projected to create up to 1.5 million jobs that are better-paying and of high-value, Dominguez said.

“We thank Representative Salceda, the various sponsors of the CITIRA bill, and the members of the House ways and means committee for heeding the call of President Duterte in his SONA (State of the Nation Address) on the swift approval of this measure, which represents Package 2 of his comprehensive tax reform program (CTRP),” Dominguez said.

Salceda and 26 other members of the ways and means committee voted Wednesday to approve the CITIRA bill under House Bill No. 313 upon the motion of Nueva Ecija Rep. Estrellita Suansing, a senior vice chairperson of the panel.

“A reduced corporate income tax and a simplified, fair and accountable tax incentives system will benefit tens of thousands of small and medium enterprises (SMEs), as what the President had pointed out in his latest SONA, and attract investments that will create quality jobs, enhance the skills of our workforce and bring in new technologies,” Dominguez said.

Finance Undersecretary Karl Kendrick Chua said the approval by the House ways and means committee of the CITIRA bill, and, earlier, the measure imposing higher taxes on alcohol products, keeps on track Salceda’s commitment on the approval by end-September of the tax reform packages pending before his panel, so that all of these bills could be taken up in, and passed by, at the plenary before the proposed 2020 national budget is tackled on the floor.

Chua pointed out that under the current corporate taxation system, firms with no incentives, which include almost all of the country’s 90,000 SMEs that employ a majority of Filipino workers, pay the regular CIT rate of 30 percent of their net taxable income–the highest in the region.

In contrast, a select group of some 3,000 companies, including those on the elite list of Top 1,000 corporations, enjoy incentives that allow them to pay discounted tax rates of between 6 percent to 13 percent of net income only.

As a result of such tax perks enjoyed by the favored companies, about P441 billion, representing 2.8 percent of GDP, was given away to only 3,150 corporations in 2017 alone, Chua said.

On top of the foregone revenues, another P63 billion was lost to revenue leakages like possible abuse of transfer pricing schemes, he added.

The Philippines’ 30 percent CIT rate is the highest among countries in the ASEAN region, thereby blunting the country’s competitiveness in attracting foreign direct investments or FDIs, Chua said.

Under the CITIRA bill approved by the Salceda-chaired committee, the CIT rate will be gradually reduced by 2 percent yearly starting in 2021 until it goes down to just 20 percent in 2029.

Fiscal incentives will also be performance-based, time-bound, targeted and made more transparent under CITIRA.

“This means that incentives will be granted based on the number and quality of jobs that will be created, the investments made on research and development (R&D) and skills training, the capital invested for countrywide infrastructure development, among other criteria,” Chua said.

Incentives for approved activities will also be given for a specific period, which are renewable if and when investors meet the approved criteria, he said.

Chua said a sunset provision will likewise be given to firms currently enjoying incentives. “At the end of the incentives period, they will be allowed to reapply again for new incentives under the new regime if they qualify,” he added.

The bill also calls for an enhanced monitoring system of incentives, including the collection of detailed information on the cost and benefits of incentives so that the public would know if such perks are used properly.

The proposed Fiscal Incentives Review Board (FIRB), to be chaired by the Secretary of Finance, will exercise oversight functions over all the investment promotions agencies (IPAs) under CITIRA, approve incentives to special projects, and will regularly conduct cost-benefit analyses to determine the impact of corporate tax incentives on the economy.

Chua said the DOF is proposing the addition of a provision during the plenary debates stating that if lowering the CIT is determined to contribute to a larger than programmed deficit in the following year, then the President will be given the power to temporarily suspend the next scheduled reduction of corporate income taxes.

The House earlier approved on second reading a bill raising excise taxes on alcohol and imposing a new round of tax hikes on electronic cigarettes such as heated tobacco and vapor (vaping) products.

The ways and means committee held a hearing to approve HB 1026. This bill, which increased the excise tax on alcohol products, was later substituted on the plenary floor by the House Committee on Rules and expanded the scope of the measure to include e-cigarettes.

Dominguez said earlier the swift action on the bill raising taxes on alcohol products and later, CITIRA, “augurs well” for the hoped-for closer coordination between Malacañang and lawmakers in the 18th Congress, as he expressed optimism that both the House of the Representatives and the Senate could give their final approval to these measures and the rest of the Palace-endorsed CTRP bills before yearend.

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