THE DEPARTMENT of Finance (DoF) said it is open to changes in its corporate tax reform proposal, but maintained that the overall objective of streamlining incentives should not be compromised.
“We have to, for sure, rationalize the incentives. Details are something we can discuss if there’s a better suggestion. How long, what rate, what industry. That is really the meat of the reform,” Finance Undersecretary Karl Kendrick T. Chua told reporters after the first public hearing on the second of up to five tax reform packages on Tuesday at the House of Representatives.
“All these numbers, we can discuss if there’s a better proposal. But the principles, we will fight (for): performance-based, targeted, time-bound and transparent,” he added, saying: “We’re open to suggestions if they have a better proposal. If it’s backed by study, then we will accept.
“There are many studies. Of course, some want longer, some want the sector to continue to be incentivized. Again, for their sector, I’m sure they’re correct. But as a DoF official, I have to balance all the interest that will come out in the final bill.”
The Department of Finance (DoF) proposes to cut the corporate income tax (CIT) rate gradually by a percentage point annually to 25% from 30% currently — the highest in Southeast Asia — conditional on collecting an additional P26 billion from removing redundant tax incentives.
Mr. Chua said that the trigger provision would ensure that the reform would be revenue-neutral an any given time.
DoF’s proposal will repeal 123 special laws on investment incentives granted by 14 investment promotion agencies, and consolidate those consistent with the government’s medium-term Strategic Investment Priority Plan into one omnibus incentive code to be administered by a Fiscal Incentives Review Board; disallow the use of value-added tax as an investment incentive; and expand the coverage of the Tax Incentives Management and Transparency Act.
The DoF’s proposal compares to House Bill No. 7458 that seeks an annual unconditional cut in the CIT to 20%.
Last month, S&P Global Ratings revised its Philippine credit rating outlook to “positive” from “stable,” citing the first tax reform package, Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law, that took effect on Jan. 1. That law cut personal income tax rates and covered the projected foregone revenues by raising tax rates or introducing new consumption levies on a range of products, besides removing the value added tax exemption of several sectors.
Finance Secretary Carlos G. Dominguez III said in his opening statement that the DoF seeks to put in place a “pro-business, pro-investment and pro-incentives” reform package, but noted that every incentive given out “must benefit society in the form of better jobs, faster innovation and countryside development.”
“Some of the incentives granted, however, were entirely unnecessary given the inherent attractiveness of our market size, our natural and human advantages and our freshly gained competitiveness,” Mr. Dominguez noted.
House Ways and Means committee Chairman Dakila Carlo E. Cua (Quirino) said private-sector parties he has been consulting have cited the incentive streamlining push as “big concern.”
“[T]hey accuse us of changing the rules in the middle of the game,” Mr. Cua recalled.
Mr. Dominguez responded by saying the second tax reform package is “proposing the change in the laws to meet the needs of the time to make the system more fair,” noting that 99% of small and medium enterprises pay the regular CIT rate while larger firms enjoy a lower preferential rate.
“It is the right of a sovereign nation to change the game,” he said.
“When we granted incentives, we changed the game and nobody complained.”
Mr. Cua also cited uncertainty since the condition attached to the CIT cut would make it difficult for firms to plan effectively.
The Finance chief replied that the DoF is “cognizant of the concerns.”
The committee’s next public hearing will focus on private-sector concerns with the second tax reform package. — Elijah Joseph C. Tubayan