House approves CITIRA on final reading

THE HOUSE of Representatives on Friday approved on third and final reading the second package of the government’s tax reform program, fast-tracking the administration’s plans to lower income taxes and slash the incentives of businesses.

On Friday, House Bill 4157 or the Corporate Income Tax and Incentives Rationalization Act (CITIRA) received majority of the votes in the House of Representatives, getting 170 votes in favor of the tax reform measure and only eight negative votes and six abstentions.

CITIRA is one of the 18th Congress’ priority bills after lawmakers failed to pass it before the close of the 17th Congress when the measure was still named the Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO bill.

The approved bill aims to lower the current 30% corporate income tax (CIT) rate by two percentage points every other year until 2029 to bring it to 20%. The CIT in the Philippines is considered as one of the highest rates in Asia.

In a statement on Friday, House Committee of Ways and Means Chair and CITIRA’s principal author Albay 2nd District Representative Joey S. Salceda said:” By reducing CIT from 30 to 20%, we are mobilizing the dynamism and efficiency, productivity, and innovation of the domestic corporate sector. Based on SEC (Securities and Exchange Commission) Top 1000 in 2017, we expect to reinvest 87% of tax savings in business expansion, explore new product-market fits and RD (research and development).”

Mr. Salceda added that businesses can reapply to extend their incentives, but the approval will be based on their performance.

“There is no limit to reapplication effectively extending incentives life but based on performance. In the first three years, the NG (national government) intends to approve all eligible applicants but based on the new framework, it provides incentives for outcomes we desire — 50% more deduction for domestic labor, 50% more for domestic input purchases, 100% more for workers training, 100% more for RD, and to encourage capital outlay, 50% for reinvestment in manufacturing, accelerated depreciation of 10 years for buildings and five years for equipment and 100% more for infrastructure,” Mr. Salceda said.

The CITIRA also provides that investments in rural regions will have 10-year incentives as opposed to the five-year incentives granted in the National Capital Region.

The bill also grants the president the power to approve incentives if initiatives are part of the comprehensive sustainable development plan and will bring in at least $200 million in revenues.

The second tranche of the government’s tax reform program is seen to generate 1.5 million jobs, Mr. Salceda said, adding that the measure will add 1.1% to the country’s gross domestic product growth in the first year of implementation and another 3.6% annually from 2020-2030, while adding only 0.9% to inflation.

The House will transmit the measure immediately to the Senate.

Some of the lawmakers who opposed the measure on Friday said the CITIRA was prematurely approved.

Buhay Partylist Representative José Livioko “Lito” Atienza, Jr. said: “In any law that concerns taxation we should be very prudent…. We have passed this law hastily.”

“The rate of CIT is not one of the major factors that attracts or discourage investment,” Albay 1st District Representative Edcel C. Lagman said, adding that policy, infrastructure, and internet speed are more crucial to improving doing business in the Philippines.

GROSS-BASED SYSTEM
Meanwhile, the Department of Finance (DoF) is working on an interagency group to study the gross-based corporate income tax system following President Rodrigo R. Duterte’s suggestion that the shift could reduce corruption, its chief said on Friday.

Finance Secretary Carlos G. Dominguez III said the administration’s economic team and other agencies will be coordinating to study a shift to a gross-based tax system from the current net income-based system.

“There is a recommendation to form a group headed by the Executive Secretary, and participated in by the Department of Justice and the Development Budget Coordination Committee (DBCC) to study this issue,” Mr. Dominguez told reporters in a phone message.

The DBCC is composed of principals of the Department of Budget and Management (DBM), the DoF, the National Economic and Development Authority, the Office of the President and the central bank, with the DBM Secretary as the chair.

Mr. Duterte first mentioned this late last month during his speech in Romblon, saying it is difficult to cheat tax computations if it is based on gross revenues.

In a recent press briefing, Mr. Duterte reiterated this, urging the public and the media to “agitate” Congress to shift to a gross-based system.

“If we go gross…ano pa ba ang i-corruption mo sa gross (income)? ‘Pag nandiyan ‘yang resibong ‘yan, ‘yan na lang bayaran mo (How can you be corrupt when taxing gross income? Once you have the receipt, that is what you will have to pay for)… Agitate Congress, gross na tayo,” he said.

He added that getting rid of brokers in the Bureau of Customs will also reduce corruption within the agency. — G.M. Cortez with B.M. Laforga