With the close of the decade, we have seen how Philippine taxation has been transformed by numerous developments unfolding in the landscape. Several changes that are in the works may make progress in the coming months. One of them is the second package of the tax reform, which proposes to rationalize tax incentives.
In the predecessor bill, known as the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO), our legislators proposed a sunset provision for the tax incentives of projects or activities that are currently registered under various incentive-giving laws. The registered projects can continue to be entitled to their existing tax incentives, e.g., income tax holiday (ITH) or the preferential 5% gross income tax (GIT), for a maximum of five years. For those enjoying the 5% GIT, the entitlement depends on the number of years the tax perk has been availed of.
When the 18th Congress opened last year, the Corporate Income Tax and Incentives Rationalization Act or the CITIRA bill, which incorporated a majority of the proposals under TRABAHO, was filed and was approved by the House of Representatives. Among the additions introduced was this sunset provision:
“Provided, finally, that existing registered activities which will qualify for registration under the Strategic Investment Priority Plan, may opt to be governed by the provisions of this Act. In such case, the said enterprise shall be required to surrender its certificate of registration, which shall be deemed as an express waiver of their privilege to avail of incentives provided in the incentives law under which they were previously registered.”
The CITIRA bill provides registered projects or activities two options. They may either (1) continue enjoying their current tax incentives, subject to a set limit, or (2) part with their existing tax incentives and avail of the perks available under CITIRA, as long as these activities meet the prescribed conditions.
For example, let us assume Project A currently enjoys the 5% GIT. With the proposed provision, Project A could give up such tax concessions by surrendering the certificate covering its existing incentive, and avail of the tax incentives granted under CITIRA, e.g., ITH for three to six years, 18% preferential income tax, or the enhanced deductions for two to four years. The only condition that Project A has to satisfy is that it is an existing registered activity which will qualify for registration under the Strategic Investment Priority Plan (SIPP).
Moving further, let us assume that CITIRA takes effect, and Project A opts to avail of the tax incentives under the new regime. If Project A’s tax incentives are about to expire, will it be allowed to renew or refresh its tax incentives if it surrenders its certification of registration and its activities are still included in the SIPP? Can Project A continue applying for the renewal of tax incentives as long as it remains to be qualified under the SIPP and gives up its previous registration certificate?
To my mind, the proposed provision seems to yield an affirmative answer.
Is this the intent of our lawmakers though? Wouldn’t this be contrary to the limited incentive period proposed by CITIRA, and ultimately, to the tax reform’s objective that the incentives be time-bound? Nevertheless, if our lawmakers contemplated possible renewals of tax incentives for existing registered enterprises, shouldn’t they draft the bill to clearly express this intent?
A law, which is clear and unambiguous, should be applied as stated. There should only be room for application, and none for interpretation. It is a cardinal rule in statutory construction of laws, that if the language of the tax law is written in clear terms free from ambiguity, then it must be applied to the letter to ease tax compliance.
In this day and age, when time and resources are scarce, who would not want clear and straightforward tax rules and policies? Taxpayers can use their resources for activities more valuable than resolving vague tax law provisions at length. More importantly, a clear tax law would minimize the troubles of our tax authority when it comes to implementation and would also lessen the burden on taxpayers in terms of tax compliance.
CITIRA still has a chance to improve in the Senate and the bicameral deliberations. The bill was transmitted from the House of Representatives to the Senate on Sept. 16. At this stage, the Technical Working Group of the Senate Committee on Ways and Means has prepared the final committee report and is ready to file it for deliberations.
Just like some of us who look forward to kicking off 2020 with a good start, the CITIRA bill also deserves an opportunity to start the year well. With the upcoming deliberations, let us hope that the bill is enhanced to achieve its purported end of realizing fairness, improving the competitiveness of the Philippines across the ASEAN, plugging tax leakages, and rationalizing tax incentives to the most reasonable and competitive extent possible.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Noelie Kristine M. Tagle is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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