PASSING the Corporate Income Tax and Incentives Reform Act (Citira) is a crucial step to make the country’s business climate more competitive as the measure takes a back seat in the legislators’ priorities.
Tax expert Raymond Abrea reiterated the bill, once approved, will have a “major impact” on the Philippines’ competitiveness ranking.
The measure brings in a new tax incentive system seen to help draw in investments from abroad.
Abrea, senior tax advisor at Asian Consulting Group, said that Citira is really geared towards benefiting businesses.
“It seems that our senators and congressmen overlooked our competitiveness ranking in drafting the Package 2 or Citira as it proposes reduction of corporate income tax from 30 percent to 20 percent by one percent every year until 2029,” he told SunStar Cebu.
“This means improving our ranking in paying taxes after 10 years, that is if other countries will not decide to further reduce their corporate income tax as Singapore is currently at 17 percent and the average tax rate in the Asean region is around 24 percent.”
The tax analyst instead suggested that reduction of corporate income tax will be from 30 percent to 25 percent immediately and gradually to 20 percent rather than the one percent every year.
“This is not just about revenue collections, but fair and efficient taxation,” said Abrea.
The Tax Reform for Acceleration and Inclusion Law, the first package of the government’s tax overhaul program, was supposed to improve the country’s scores in paying taxes with the reduction of income tax return pages from 12 to four only.
“But such improvement was offset by the 100 percent increase in documentary stamp tax which means higher cost in doing business,” he said.
The Philippines made a remarkable progress in the ranking of the World Bank’s Doing Business 2020 Report from 124 rising by 29 notches and landing on rank 95.
According to the report, the country has made significant improvements in areas of starting a business, dealing with construction permits and protecting minority investors.
The Department of Finance (DOF) said Citira’s proposed incentives regime once approved by the Congress will keep the Philippines highly competitive compared with other Southeast Asian countries that also offer tax perks to investors.
Thailand’s tax incentives
In response to recent news that Thailand is offering its tax incentives to high-tech firms relocating from China, DOF Undersecretary Karl Kendrick Chua said the Philippines’ incentive system under Citira are “at the very least at par with, if not more generous and competitive compared to, those of Thailand.”
“There is a recent report that Thailand is offering a 50 percent income tax discount for five years to qualified high-tech firms, subject to conditions such as a minimum level of investment of one billion baht (or around US$32.7 million) and investment commencement in 2021. Relocating companies to Thailand will face a 10 percent tax on net income, instead of the regular 20 percent tax,” he said in a statement.
“Aside from the Philippines’ talented English-speaking workforce and young robust market, which are the main attraction to investors, the competitive tax incentive system under Citira will help draw in investments that are coming out of China as a result of the US-China trade war,” Chua said.