WHILE investor concerns on rationalizing tax perks as key to the government’s corporate taxation overhaul escalate, a tax expert says such is crucial to make the country’s tax paying field fair.
Raymond Abrea, president of Asian Consulting Group, said the “fiscal incentive rationalization is indispensable to make the paying field fair and competitive” to both local and foreign companies.
“It’s making sure any tax incentive is given only to qualified corporations within a given period, and not indefinite,” the tax expert told SunStar Cebu when sought for comment on concerns that scaling back on tax incentives might push firms to relocate to other countries.
The government is pushing to streamline incentives that have cost the country P441 billion ($8.4 billion) in estimated foregone revenue a year, in exchange for lower corporate income taxes.
Urgent
Abrea pointed out that the second package of the tax revamp plan—dubbed the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill—is urgent.
“The lowering of corporate income tax is urgent even before the President announced it as a priority bill during his Sona (State of the Nation Address). This is owing to the fact that we have the highest income tax rates both for individuals and corporations. Singapore has 17 percent income tax,” the tax reform advocate said.
Abrea also stressed that the tax overhaul is necessary to make the Philippines competitive in the region.
“Lowering of the personal income tax is to avoid a huge disparity with corporate income tax which may be availed of by an individual under the one-person corporation,” he said.
The tax reform proposes to gradually cut the country’s corporate income tax rate from the current 30 percent, to 20 percent over the next 10 years, along with the five-year phase-out of incentives.
Under Train (Tax Reform for Acceleration and Inclusion) passed in 2017, those with annual taxable income below P250,000 are exempt from paying personal income tax, while the rest of taxpayers, except the richest, will see lower tax rates ranging from 15 to 30 percent by 2023. To maintain progressivity, the top individual taxpayers whose annual taxable income exceeds P8 million face a higher tax rate of 35 percent from the current 32 percent.
The Japanese Chamber of Commerce and Industry of Cebu Inc. (JCCICI) is among the business groups that have aired their opposition to the plan to streamline incentives.
The JCCICI had warned about the possible impact of the Trabaho bill on investors locating at economic zones.
The JCCICI has 138 member companies, about 99 of which are firms registered with the Philippine Economic Zone Authority.
Earlier, Ken Iwakami, the chamber’s secretary general, told SunStar Cebu they would continue to “lobby against this bill,” saying other sectors had shared their sentiment.
“Since our business environment around JCCICI has been getting stricter lately due to not only this issue but also another issue brought up, some of the locators especially in MEZ (Mactan Economic Zone) 2 might be relocated to other countries or production cuts will be planned in the near future,” Iwakami had said.
Under the bill, the government wants to phase out its current set of tax perks, among Southeast Asia’s most generous.
Businesses in Philippine economic zones currently pay a five percent tax on gross income earned, in lieu of all other taxes, in perpetuity.
The bill proposes that businesses will have to reapply for incentives that will be granted to priority industries outside the capital.
Investments are being lured outside the capital to bring development to provinces.
The proposed list of priority industries includes agribusiness, auto and aerospace parts, business process outsourcing, chemicals, electronics, furniture and garments, shipbuilding, and transport and logistics.
The government is proposing an additional two years of incentives for firms that relocate outside Manila, agribusinesses in rural areas and firms that set up in post-conflict and post-disaster zones.
The House committee on ways and means earlier approved House Bill 176. With President Duterte’s support, the Department of Finance expects the tax reform to be passed into law before the year’s end. (CSL)