FORMER officials of the Department of Finance (DoF) have expressed their support for the second tax reform package ahead of public hearings set to start this week.
Former Secretaries and Undersecretaries of the DoF issued a statement on Friday that the government should “urgently pursue” the proposal to cut corporate income tax rates and modernize the fiscal incentives regime.
“We continue to share the country’s goal of becoming a prosperous, predominantly middle-class society. Achieving this will require an equitable tax system and robust public investment, which the first package of reforms began to address,” they said in their statement.
“Alongside strong and strategic public spending, tax policy must enable a fair, competitive, and growing business sector. Standard rates must be reasonable, to encourage compliance, broaden the tax base, unburden small and medium enterprises, and create strong domestic value chains. At the same time, fiscal incentives must be treated as a public investment: the economic benefits must outweigh the costs in foregone revenue, and the tax incentive regime must align with the country’s socioeconomic priorities,” they added.
The first public hearing for the second tax reform program is scheduled for Tuesday, about four months since the DoF submitted to the House of Representatives its proposal, and two months since ways and means committee chairperson Dakila Carlo E. Cua (Quirino), together with Representatives Aurelio D. Gonzales, Jr. (Pampanga 3rd district), and Raneo E. Abu (Batangas 2nd district filed their own versions on March 21.
House Bill No. 7458 mainly seeks an annual 1 percentage point cut in the corporate income tax (CIT) rate from the current 30% to 20%, while the Finance department’s proposal features a 1 percentage point cut until the rate hits 25%, conditional upon collecting 0.15% of gross domestic product, or about P26 billion, from the streamlining of incentives.
Both proposals seek to put the tax holidays granted by various investment promotion agencies into a “single menu” under the supervision of the Fiscal Incentives Review Board co-chaired by the Finance and Trade departments, and replace the current perpetual 5% tax on gross income earned to a time-bound 15% tax on net taxable income, while removing those that do not qualify under the government’s medium-term Strategic Investment Priorities Plan.
Mr. Cua said last week that his committee will seek proof from affected stakeholders on which incentives yield benefits the economy to warrant its possible retention.
Moreover, the former DoF officials said that the current fiscal incentives regime was made “complex and costly made by years of neglect and abuse.”
They also said that the proposal would “spur countryside development and public investment,” noting the provision of granting a one-year relocation tax holiday for firms moving out of Metro Manila and selected areas in Central Luzon and Calabarzon, and “superior incentives for lagging regions.”
They added that the reform proposal would free local government units from “a system that allowed registered enterprises to pay preferential rates in lieu of all taxes, including local taxes.”
The officials also said that they support the inclusion of expanding the scope of the Tax Incentives Management and Transparency Act for better monitoring of tax perks.
“We therefore express our strong support for Package 2 and urge members of Congress to ensure its timely passage, the statement read in conclusion.
The statement of support was signed by former Finance Secretaries Margarito B. Teves, Roberto F. de Ocampo, Alberto G. Romulo, Salvador M. Enriquez, Jose T. Pardo, Jose Isidro N. Camacho, Cesar V. Purisima, and Undersecretaries Romeo L. Bernardo, Lily K. Gruba, and Cornelio C. Gison.
The DoF seeks to have the corporate income and incentives package — the second of five proposals — implemented by 2019. This would be the follow-up reform to the Tax Reform for Acceleration and Inclusion (TRAIN) law or Republic Act 10963 that became effective in January.
“We hope that the House and later on the Senate will pass this certainly within this year because starting January, that’s already campaign season,” Finance Secretary Carlos G. Dominguez III told reporters on Friday. — Elijah Joseph C. Tubayan