THE Department of Finance (DoF) said it is expecting more investment from companies expanding their operations as a result of the latest round of tax reforms in anticipation of a decline in corporate tax rates, creating 1.5 million additional jobs.
Finance Undersecretary Karl Kendrick Chua said in a statement that the proposed Corporate Income Tax and Incentives Rationalization Act, currently the CITIRA bill making its way through Congress, will encourage companies to invest their tax savings in expansion.
“Our numbers are transparent. Companies will reasonably invest at least 50% of their additional money from the reduction of the corporate income tax rate (CIT) rate (to grow) their business. This will mean more jobs — a total of 1.5 million jobs actually.”
Mr. Chua also said that the “new menu of incentives” under the bill “will also encourage job creation and upskilling.”
His remarks were in response to the claims of John D. Forbes, Joint Foreign Chambers of the Philippines’ (JFC) senior adviser, that the bill, if enacted, will result in around 700,000 job losses in its first year, as it “destroys the highly successful incentives system that has brought in foreign investors.”
“I also want to ask them if they have included in their calculations the jobs that will be created when JFC member-companies are able to expand using the savings from a lower CIT rate,” Mr. Chua added.
He said that the tax reform “must be treated as a package” to be “fiscally prudent.”
“We cannot pursue one aspect, which is the reduction of the CIT rate, without pursuing the other, which is the modernization of the fiscal incentive system, if we want to be fiscally prudent,” he said.
Mr. Chua said there are “superior incentives” under the bill such as the additional 50% deduction on direct labor expense, a 200% deduction on training costs, double the current 100%, and the 50% deduction on local purchases of inputs from small and medium enterprises.
“The proposed system is designed to reward them for training their employees. They can essentially bill part of their expense to government,” he added.
CITIRA is the second package of the administration’s comprehensive tax reform program along with package 2+ which includes the reform of mining taxes and an increase in excise tax on alcohol products and e-cigarettes. Package three centralizes the real property valuation system and package four reorganizes the tax structure for financial investments.
Meanwhile, Trade Secretary Ramon M. Lopez has said he is seeking a longer transition period for companies enjoying incentives under the current system, which will be overhauled once the bill is passed.
Mr. Lopez said he supports a five-to-seven year transition period in general and a seven to ten-year transition period for firms that employ at least 3,000.
The House of Representatives on Sept. 13 approved House Bill 4157 or the CITIRA which will gradually lower corporate income tax to 20% by 2029 from the current 30%, remove tax incentives deemed redundant and make all the rest time-bound and performance-based.
The DoF estimates the government has lost around P1.2 trillion in foregone revenue from tax incentives granted to 3,150 companies between 2015 and 2017. — Beatrice M. Laforga
