CORPORATE tax legislation, still pending at the Congress, needs to pass by the first half to keep the tax reform program on track, according to the Economist Intelligence Unit (EIU).
In a note Wednesday, EIU said the proposed Corporate Income Tax and Incentives Reform Act (CITIRA) continues to face delays as business groups lobby over the planned overhaul to fiscal incentives.
It said the measure, which was approved by the House of Representatives on Sept. 13 and remains pending at the Senate, should be passed in the first half if the Philippines is to remain “on track” to bring corporate income tax rates to 20% by 2030.
“The president, Rodrigo (R.) Duterte, is facing delays in reforming the Philippines’ outdated tax code,” the report noted.
On the measure imposing higher excise tax on electronic cigarettes, vapor products and alcoholic products, Finance Assistant Secretary Antonio Joselito G. Lambino II has said that the measure is “under final review (by) the Office of the President.”
The measure, which forms Package 2+ of the Comprehensive Tax Reform Program, was ratified by the 18th Congress on Dec. 18. It lapses into law on Jan. 24 if the President takes no action.
Congress resumes session on Jan. 20, after a one-month recess.
BusinessWorld sought comment from the office of Senator Pia S. Cayetano, who chairs the Senate Ways and Means committee, to ask for a timeline on the bill’s approval but it had not replied at deadline time.
EIU said the reforms are needed if the government is to hit its tax collection target for this year of over P3 trillion.
“The resolution of Mr. Duterte’s corporation tax reforms will play out this year. The president needs to increase tax revenue to fund his commitments to raise social spending and disbursements for infrastructure,” it said.
“While the government will find it hard to achieve its ambitious revenue target, the shortfall in actual tax collection will not be wide, considering that the pace of reduction in the corporate income tax rate is much slower than that at which incentives are supposed to be rolled back,” it added.
However, it said the impact of the lower tax rates, which could arrest the decline in foreign direct investment (FDI), will largely depend on the bicameral review by the two Chambers.
FDI net inflows rose 33.7% year-on-year to $672 million in October but year-to-date figure is still down by 32.8% at $5.79 billion, due to “subdued investor sentiment.”
EIU said the bicameral session to harmonize both chambers’ bills will “likely… center on fiscal incentives and the status of tax on gross income earned (GIE).”
Business groups, including foreign chambers of commerce have constantly warned of job losses if fiscal incentives currently enjoyed by companies operating in special economic zones are overhauled.
Finance Undersecretary Karl Kendrick T. Chua has asked for more evidence on the job loss claims.
The report said various foreign chambers of commerce have that estimated at least 15 out of the 250 regional operating headquarters in the Philippines have closed after their 15% preferential tax rate for employees was removed under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.
On the transition period for companies adopting new incentives, EIU said “a compromise is likely to be reached in the bicameral stage.”
The Philippine Economic Zone Authority (PEZA) has said it wants a 15-year transition period while the Department of Trade and Industry (DTI) is seeking a 7-year transition period, as opposed to the two to five year period in the bill approved by the House.
The remaining priority measures that have yet to be passed by Congress are CITIRA, the mining tax bill, the real property tax bill and a measure that will simplify the tax structure for financial investments.
So far, the government has passed Republic Act (RA) No. 10963, which slashed personal income tax rates and increased or added levies on several goods and services and RA 11213 or the Tax Amnesty Act of 2019 which granted an estate tax amnesty and an amnesty on delinquent accounts that remain unpaid even after final assessment. — Beatrice M. Laforga
