THE Department of Finance (DOF) allayed fears that the passage of the second tax reform package would harm the country’s investment climate.
The Tax Reform for Acceleration and Inclusion (Train) 2 seeks to rationalize fiscal incentives and reduce corporate income tax rates gradually to no less than 25 percent from 30 percent.
The DOF submitted the proposal to the House of Representatives last Jan. 19.
Speaking before the Cebu business community yesterday at the Philippine Economic Briefing at Marco Polo Plaza Cebu, DOF Director Euvimil Nina Asuncion assured that the proposed legislation is not meant to remove incentives but rather make it more responsive, relevant and effective.
“We are not taking away incentives but we are modernizing them so that we could have a better economic environment that thrives,” said Asuncion.
The economic team of the Duterte administration is proposing to modify tax incentives for companies to make these “performance-based, targeted, time-bound, and transparent.”
Under this tax reform package, the government would be able to ensure that incentives granted to businesses generate jobs, stimulate the economy in the countryside and promote research and development; contain sunset provisions so that tax perks do not last forever; and are reported so the government can determine the magnitude of their costs and benefits to the economy.
Asuncion said it is about time that incentives enjoyed by big companies like income tax holidays and other perks with no time limit need to be corrected.
“While tax incentives are privileges granted by the government, it also has the authority to take them away if deemed necessary,” she said.
Tax incentives including special tax rates are costing the government over P300 billion annually in foregone revenues, according to the DOF.
At present, the law grants an attractive package of incentives, including income tax holiday for up to eight years, followed by a perpetual five percent tax on gross income earned, and zero value-added tax on local purchases and up to 30 percent of local sales, among others.
Stanley Go, president of the Mandaue Chamber of Commerce and Industry (MCCI), favors the adjustment in tax incentives, saying it would encourage companies to perform better.
“It is not totally eliminating the incentives but rather putting some criteria to it. I agree that incentives should be time-bound to make it fair for other industries,” said Go.
He believes this proposal would not discourage foreign investors to come in, as incentives are just one of the many factors they consider in a destination.
He said other key things include the presence of support infrastructure, the ease of doing business and the availability of talent pool equipped with the right skills set. “Incentives are a plus. It is nice to have them,” he said.
With the Duterte administration embarking on various economic reforms, Cebu Chamber of Commerce and Industry (CCCI) president Antonio Chiu said they want assurance all of these would work to make the country competitive.
“The stand of the chamber is to really make sure of the competitiveness of the Philippines. We understand that they are some laws which are obsolete and disadvantageous, but some of them are necessary too to attract investors,” said Chiu.
The Train 2 package complements the recently-implemented first package of Train Law, which was meant to gradually reduce and eliminate poverty. (With CNU Intern Elitz Alia Caballero)