THE Department of Finance (DoF) has warned against reducing corporate income taxes “too quickly” to avoid worsening the deficit and increasing the risk of a credit rating downgrade.
Finance Secretary Carlos G. Dominguez III said the current proposal to reduce corporate taxes over 10 years is a “long period” which is necessary if the government is to maintain the deficit at a little over 3% of Gross Domestic Product.
“I agree that it’s a long period but we have a choice here… If we drop the rates too quickly, we are going to balloon our deficit and ballooning our deficit is going to probably mean a credit downgrade,” Mr. Dominguez said during the The Asset’s 14th Philippine Forum in Taguig City yesterday, when asked about the possibility of shortening the time frame for reducing corporate income tax.
“If a credit downgrade happens, everybody’s interest rate goes up so what’s the use of it?” he said.
Under the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, the corporate income tax rate will be gradually reduced to 20% by 2029 from the current 30% while removing redundant tax incentives.
He also said that streamlining incentives will not drive away foreign investors since incentives are only part of the decision-making process.
“I believe that when foreigners make investments they want to see stability in policy… fairness of the legal system they want to see safety of their personnel, they want to see improvements in the infrastructure and lower cost and finally, they want to see what incentives there are,” he said.
Mr. Dominguez said studies by several multilateral banks showed that investors do consider tax perks but they will not be the sole basis for making an investment.
CITIRA has hurdled final reading at the House of Representatives while its counterpart legislation is pending at the Senate.
Meanwhile, he clarified that the government is not against the Philippine Offshore Gaming Operator (POGO) industry but is mainly interested in its compliance with tax law.
“The law says, everybody who works in the Philippines whether they are foreigners or domestic workers have to pay taxes… Follow the law, withhold the taxes as required by law… If I were the landlord, pay your taxes or else you’re going to be shut down,” he said. — Beatrice M. Laforga