A SECOND key tax reform — which slashes corporate income tax rates but also streamlines investors’ perks — hurdled a committee of the House of Representatives a day after another measure, which raises alcohol products’ excise tax rates, bagged approval from the same body.

The proposed alcohol tax hike was approved in plenary session on second reading on Wednesday evening.

The House Ways and Means committee on Wednesday approved House Bill No. 313, or the proposed “Corporate Income Tax and Incentives Reform Act,” or CITIRA, (in the past Congress, called the “Tax Reform for Attracting Better and High-quality Opportunities” or TRABAHO), invoking Rule 10 Section 48 of House rules that allows priority bills that bagged third- and final-reading approval in the preceding Congress to “be disposed of” sans public hearings.

“Since this is a priority bill of the House and of President Rodrigo Roa Duterte, I invoke the Rule 10 Section 48 of the House Rules… I hereby move that this be disposed,” said Nueva Ecija 1st district Rep. Estrellita B. Suansing, who is the committee’s vice-chairperson.

By law, tax measures originate in the House, although Senate leaders have said they will hold parallel hearings in order to expedite action on bills deemed priorities.

The head of the Senate Ways and Means committee said the panel on Thursday will start consideration of remaining tax reforms.

TRABAHO was among those identified as priority by President Rodrigo R. Duterte in his fourth State of the Nation Address (SONA) on July 22 and was one of 28 measures identified as key to improving the country’s business climate by 14 local and foreign chambers on July 30, eight days after the 18th Congress convened for its first of three regular sessions.

Principally authored by Albay 2nd District Rep. Jose Ma. Clemente S. Salceda, who heads the Ways and Means committee as chairman, HB 313 seeks to cut the current 30% corporate income tax rate — described as the highest among major Asian markets — by two percentage points every other year to 20% in 2029, “provided… that the President may advance the scheduled reduction… when adequate savings are realized from the rationalization of fiscal incentives…”

In his explanatory note, Mr. Salceda said the bill aims to attract more foreign direct investments by bringing down the corporate income tax rate to lower levels enforced by the Philippines’ closest competitors in Southeast Asia, and ensure that such perks lure investments that create jobs, transfer technology and benefit less developed areas of the country.

Perks now offered to economic zone locators consist of a four- to eight-year income tax holiday; a special tax rate of five percent on gross income after the ITH period expires; tax- and duty-free importation of capital equipment, spare parts and supplies; exemption from wharfage dues as well as export tax, duty, impost and fees; and eased restrictions on employment of foreign nationals.

The Finance department estimates that such incentives cost the government about P1.2 trillion between 2015 and 2017 — P301.2 billion in 2015, P380.7 billion in 2016 and P441.1 billion in 2017. The Philippine Economic Zone Authority (PEZA) — which last year had the second-biggest value of committed projects after the Board of Investments — accounted for P879.1 billion, or 78%, of the P1.2-trillion total.

Among others, HB 313 removes the option for investors to avail of the five percent gross income tax, caps the ITH at five years and will subject those who enjoy preferential rates to the regular corporate income tax rate. It also provides a schedule of amount of interest paid or incurred that may be allowed as deduction from computation of gross income.

It also grants fiscal incentives only to exporters and industries listed in the Strategic Investments Priority Plan, taking into account substantial amount of investments, employment generation, use of new technologies, adequate environmental protection systems, promotion of competitiveness, addressing of gaps in the supply or value chain and value-added production of micro, small and medium enterprises.

The measure also authorizes the President to grant incentives to a project that has a “comprehensive sustainable development plan” and brings in “at least $200 million.”

The House ways and means committee on Tuesday approved HB 1026, which proposed to increase the excise tax rate on alcohol products, also invoking House Rule 10 of Section 48.

The bill will increase to 22% from 20% the ad valorem tax on the net retail price per proof of distilled spirits, and the specific tax to P30 per liter from P23.40 currently. The specific tax rate will rise by P5 every year until it reaches P45 in 2022, after which it will increase by seven percent annually beginning 2023.

Sparkling wines, meanwhile, will be levied with a 15% ad valorem tax per liter, which is not imposed under the present system; in addition to a P650 specific tax per liter in 2020, which will likewise increase by seven percent annually.

The House in the 17th Congress that ended in June had approved all tax reform packages, but many of them failed to bag Senate approval.

The government has so far enacted Republic Act No. 10963, which slashed personal income tax and increased or added levies on several goods and services; RA 11213, which offers estate tax amnesty and amnesty for delinquent accounts that remained unpaid even after being given final assessment; and RA 11346, which will gradually increase excise tax on tobacco products to P60 per pack by 2023 from the current P35.

In his latest SONA, Mr. Duterte also asked the 18th Congress to approve proposals to increase excise tax rates for alcohol products and e-cigarettes, centralize real property valuation and assessment, and simplify the tax structure for financial investment instruments.

Senator Pia S. Cayetano, Ways and Means committee chairperson in the Senate, said in a statement on Wednesday that an Aug. 15 “meeting will focus on the Comprehensive Tax Reform Program” and has invited the Department of Finance, which will be represented by Undersecretary Karl Kendrick T. Chua who will brief lawmakers on tax reforms Mr. Duterte mentioned in his SONA.

Finance Secretary Carlos G. Dominguez III had said that tax measures should be approved by Congress within 15-18 months, since lawmakers are expected to be distracted by preparations for the May 2022 national, legislative and local elections starting in 2021.

Moody’s Investors Service said last Friday that while “[t]he strong pro-administration majority in both houses of the legislature enhances the prospects for further reform… the government has a comparatively short window of about two years to pursue its legislative agenda.”

“We expect campaigning to detract attention away from reform in the year prior to the next general election scheduled for 2022,” Moody’s had said.

Business groups and state investment promotion agencies like PEZA have warned of the negative effect any move to change incentives could have both on prospective investors and expansion plans of those already operating in the country.

The central bank reported on Tuesday that foreign direct investment (FDI) net inflow reached $3.145 billion as of May, dropping 37.1% from $5.002 billion in last year’s first five months. That compares to the central bank’s $10.2 billion projection for this year.

From a record high of $10.256 billion in 2017, FDI net inflows dropped 4.4% to settle at $9.802 billion last year.

State economic managers like Socioeconomic Planning Secretary Ernesto M. Pernia have asked Congress for laws that will ease restrictions on foreign ownership and participation in various sectors, deemed the steepest in Southeast Asia. — Charmaine A. Tadalan with input from V. A. C. Ferreras