Dominguez urges Senate to include stimulus measures in calibrated corporate tax reform bill

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Finance Secretary Carlos Dominguez III has called on the Senate to include the economic team’s proposal on immediately cutting the corporate income tax (CIT) rate from 30 percent to 25 percent starting July this year, along with other investor-friendly measures, when it opens plenary debates on Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP).

Dominguez said the Congress can help stimulate the economy amid the coronavirus disease 2019 (COVID-19) crisis through the urgent passage of the “calibrated” CTRP Package 2, previously known as the Corporate Income Tax and Incentives Reform Act or CITIRA.

With its direct integration into the country’s economic recovery program and proposed enhancements, the economic team has renamed the former CITIRA the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).

Dominguez, who heads the government’s economic team, described CREATE as “one of the largest economic stimulus measures in the country’s history,” given that the measure would free up almost P42 billion in business capital for 2020 alone—and P625 billion over the succeeding five years.

On top of the outright 5 percent tax cut in 2020, the CREATE bill also provides for a 1-percentage point reduction in the CIT each year until 2027, so that the rate will only be 20 percent by that time.

“The large and immediate rate cut in the second half of 2020 also sends a strong signal to the world that the Philippines is positioning itself as a premier investment destination for companies that are looking to diversify their supply chains,” said Dominguez in his recent report to the Senate on the government’s ongoing socioeconomic efforts to defeat the COVID-19 contagion.

This recalibrated Package 2 is “clearly not an effort to raise taxes as (this) will be decisively revenue-negative,” leaving more resources in the hands of business owners to fund operations and retain employees, Dominguez said.

Dominguez has expressed hope that the Congress will pass the CREATE bill before it adjourns next month, so that the across-the-board CIT reduction can be implemented by July this year.

The Finance chief said the measure aims to fuel economic dynamism, especially among the country’s growth engines—the micro, small and medium enterprises (MSMEs)—that employ a majority of Filipino workers.

More details on the proposed economic measures of the CREATE bill were also revealed by both Dominguez and Acting Socioeconomic Planning Secretary Karl Kendrick Chua during the recent ’Sulong Pilipinas: Youth Partners for Progress,’ an online public consultation workshop attended by over 400 youth leaders in 100 schools and 35 organizations.

An enhanced net operating loss carry over (NOLCO), extended from three to five years, for losses incurred in 2020 is part of the proposal and will be applicable to all businesses that are not large taxpayers.

“The businesses’ losses today can be credited to the future, which will effectively lower their tax payments,” Chua had explained during the Sulong workshop.

On top of these enhancements, the economic team further explained how existing businesses, under Package 2, will continue to benefit from their existing incentives in the short- to medium-term.

“For existing investors currently enjoying the gross income earned (GIE) incentive, our proposal is not to change anything in their incentives in the next four to nine years to give them time to adjust to and recover from COVID. As we keep on repeating, after this initial transition, we are not taking away incentives as businesses can always apply again for incentives under the new regime,” Chua said.

Other salient provisions of the corporate tax reform will be retained, such as targeting incentives to support investment in the countryside and expanding the role of the existing Fiscal Incentives Review Board (FIRB), which will streamline the management and governance of tax incentives.

Earlier, Dominguez told senators that while 2020 will be a challenging year for the economy, he is optimistic that “the timely implementation of our economic recovery program, together with the efforts of the private sector, will enable our country to get back on its positive growth trajectory.”

Dominguez projects the country will bounce back in 2021 with a GDP growth rate ranging from 7.1 to 8.1 percent.

“Countries around the world are moving toward jump-starting their economic engines. Whether the Philippines underperforms or outperforms its peers and neighbors will depend largely on our comparative resilience, and on whether we build on or demolish our solid fundamentals,” said Dominguez in his report to the Senate.

The Senate constituted itself into a Committee of the Whole starting May 19 to discuss the status of the government’s measures to suppress COVID-19 and restart the economy.

“In partnership with the Congress, the Duterte administration will protect our economic gains, support our recovery, strengthen our resilience, and solidify our return to the path of inclusive and shared prosperity,” Dominguez said.

In his presentation to the Senate, Dominguez also thanked the Congress for acting swiftly against the coronavirus crisis by passing the Bayanihan to Heal as One Act, which grants expanded budgetary powers to the President to effectively carry out the government’s COVID-19 response measures.

Dominguez also cited President Duterte’s prudent fiscal management policies which, he said, has made the economy better positioned to deal with the pandemic.

“This has enabled the government to pursue a four-pillar strategy to shield the Filipino people against the adverse impact of the pandemic and craft a recovery program to gradually jumpstart the economic activities. The strategy has a combined value of P1.74 trillion or 9.1 percent of GDP,” Dominguez said.

This four-pillar anti-COVID strategy covers the following: (1) providing poor and low-income households, small-business employees and other vulnerable groups emergency and wage subsidies; (2) marshalling the country’s medical resources and ensuring the safety of healthcare front-liners; (3) fiscal and monetary actions to finance emergency initiatives and keep the economy afloat, and (4) an economic recovery plan to create jobs and sustain growth under a post-quarantine scenario, which will be funded largely by pillar No. 3.

In the meantime, Dominguez said he has recommended to the President five priority actions to revive the economy while, at the same time, protecting the health and well-being of our citizens.

These include: (1) reviving and accelerating the “Build, Build, Build” infrastructure modernization program, subject to compliance with minimum health standards; (2) hiring contact tracers to boost our efforts to treat infected persons and slow down viral transmission; and (3) attracting foreign investors in search of resilient, high-growth economies like ours by passing a redesigned CITIRA to include flexible tax and non-tax incentives to better target the kind of investors our economy needs.

He has also recommended: (4) promoting the manufacturing of products that have strong, inelastic demand, such as food production and logistics, to stimulate demand; and (5) supporting their whole value chains, from inputs to packaging and logistics.

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