THE DEPARTMENT of Finance (DoF) said approving the second tax reform package on corporate income tax and fiscal incentives will be positive for legislators seeking re-election during the midterm elections.
The Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill remains pending at the committee on ways and means. The House approved its version in September.
“Considering the political implications of the second package, if they actually think about it, it’s actually good. Can you imagine you are giving a tax break to 99% of the corporations in the Philippines by reducing the corporate income tax… that is a big incentive for the people. If you think about it that way you should be able to pass it in a flash,” Finance Secretary Carlos G. Dominguez III said late Friday.
“Except there are a few corporations which I’m sure certainly do not make up even 1% of the total number of corporations who are very noisy about it. It’s really a question of who the legislators are going to listen to — The vast majority of Filipino companies or a few foreign companies? Who are they going to listen to? That is the issue now,” he added.
The DoF wants to have the TRABAHO bill passed before the 17th Congress ends in mid-2019.
The TRABAHO bill, which is the second tax package after the Tax Reform for Acceleration and Inclusion (TRAIN) law, seeks to cut the corporate income tax rate gradually from 30% currently to 20% by 2029 via a two-percentage-point reduction every other year starting 2021.
Fiscal incentives will be limited to industries identified in the Strategic Investments Priority Plan (SIPP) and will make them subject to performance benchmarks. Incentives will be harmonized into a single menu, including: a three-year income tax holiday, after which, a special net income tax rate of 17% will be charged starting 2021; deductions for labor, research and development, training, and infrastructure development expenses; and some customs duties exemptions for up to five years.
Following this, companies will be taxed at the prevailing corporate tax scheme. Currently, income tax holidays can be as long as nine years, with a 5% tax on gross income earned in lieu of all other taxes.
Legislative session will be suspended for three months starting Feb. 9 to make way for the campaign period and the midterm elections, followed by a small May 20-June 7 window as the final session of the 17th Congress
The Senate committee on ways and means has so far conducted one public hearing, putting in focus the potential job losses that the TRABAHO bill might cause.
The Philippine Economic Zone Authority (PEZA) and private economic zone locators have been vocal about lost investment or withdrawals of operations due to the restructuring of fiscal incentives.
“You’re holding hostage an entire business community to the interest of the few which are not even sure that they will be affected badly. I cannot understand why you would not want to benefit the majority of your voters to the possible detriment, not even the detriment, to the remote possibility that some non-voters are going to get hurt or not have such a good deal as before. That’s just a possibility,” said Mr. Dominguez.
The committee’s chair, Senator Juan Edgardo M. Angara meanwhile said that the 2019 budget, that is also pending upper chamber approval, takes precedence over the TRABAHO bill.
“We can’t move on that front while the budget bill is in session under senate rules. Still a need for more hearings and consultations,” he said in a mobile phone message yesterday.
Other tax packages include: higher excise taxes on mineral, alcohol and tobacco products, harmonization of property valuation, and the rationalization in capital income and financial taxes — which have all hurdled the lower chamber of Congress as of December and is now up for Senate committee-level talks. The tax amnesty program meanwhile is up for President Rodrigo R. Duterte’s signature. — Elijah Joseph C. Tubayan
