The Social Security System (SSS) and other government agencies have expressed their support for the proposed reforms in the corporate tax system, given that such proposals, which include lowering the corporate income tax (CIT) and modernizing investment incentives, would attract investments and create more jobs in the private sector especially among micro, small and medium enterprises (MSMEs).
During one of the earlier hearings conducted by the House ways and means committee on the proposed corporate tax reform package, the SSS, represented by its president Emmanuel Dooc, said lowering the CIT rate would mean additional disposable income for employers, which in turn would lead to business expansions and more jobs, which would translate to more SSS members.
“Right now, our current count is we have about close to five million voluntary members, and another close to five million self-employed members. By giving incentives to the small businesses, we hope to see more robust, more vibrant business activities in this sector,” Dooc said.
More business activities for MSMEs means “covering more employees, more individuals who are working from this sector,” Dooc said. “And this will widen the safety net. This will enlarge our social security protection which is actually our goal.”
“I hope that this will be passed into law, so that SSS can provide better, universal, and affordable social security benefits to our working class,” Dooc said.
The House of Representatives approved on third and final reading last Sept. 10 its version of the corporate tax reform bill dubbed the Tax Reform for Attracting Better And High-quality Opportunities (TRABAHO) Act.
Representing Package 2 of the Duterte administration’s comprehensive tax reform program, the TRABAHO bill was transmitted by the House the following day to the Senate, which has yet to act on the measure.
For the Department of Health (DOH) it “is optimistic that [Package 2] will create new jobs, bring development to resource-constrained areas, and attract investments to research and development, new technologies and even medical tourism.”
The National Council of Disability Affairs said it “generally supports the measure,” and expressed willingness to work with the Department of Finance (DOF) in providing safety nets to ensure that the welfare of marginalized sectors like persons with disabilities remain protected once this tax reform package is passed into law.
Earlier, the DOF said it has identified a total of 645 registered enterprises that continue to receive tax incentives even after 15 years in the business, proving that investment perks given usually to big or multinational firms– many of them are “inherently profitable”–have become redundant and unnecessary.
Finance Undersecretary Karl Kendrick Chua said data reported by investment promotion agencies (IPAs) as mandated under the Tax Incentives Management and Transparency Act (TIMTA) also show that for 2015 alone, the government gave away P86 billion-worth of income tax incentives to firms that paid out a total of P83 billion combined in dividends.
Chua said that when the DOF did a cost-benefit analysis of the registered firms in IPAs receiving tax incentives, it came out with three main factors to determine if the perks they are getting are necessary or not, or if these are redundant or non-redundant.
These factors are 1) the length of the availment of incentives, to find out whether a firm has been receiving incentives for more than 15 years; 2) profitability, to verify whether the firm is inherently profitable or not, and whether it is already earning three times the median of the industry it belongs to; and 3) the motivation to invest, to find out why they chose to relocate here.
Chua said the DOF study showed that 43 percent of the firms registered with IPAs are worthy of being granted incentives, while the remaining 57 percent are receiving incentives that are already unnecessary or redundant.
The government lost P178.56 billion in potential revenues in 2016 alone as a result of tax incentives given out to only 3,102 firms registered with various IPAs.
Based on data from the Bureaus of Internal Revenue (BIR) and of Customs (BOC) the government had foregone P74.53 billion in revenues from income tax holidays (ITHs), P46.66 billion from special income tax rates and P57.38 billion in customs duties. The incentives from VAT and local taxes have yet to be computed.
These foregone revenues as a result of tax incentives given out to select enterprises are collectively termed as “investment tax expenditures.”
Under the Budget of Expenditures and Sources of Financing (BESF) document published by the Department of Budget and Management (DBM), these only include ITHs, special income tax rates and incentives on customs duties.
Data collated by the DOF for 2016 do not yet include foregone revenues from the value-added tax (VAT) exemptions on imports and local VAT that enterprises registered with IPAs also get to enjoy. It also does not yet include the foregone local taxes and leakages that may arise as a result of abuse of transfer pricing.
Foregone revenues from investment incentives, excluding VAT and local tax privileges, grew 71.03 percent in 2016 from the previous year’s figure of P104.40 billion and were 52.52 percent higher from 2015 projections.
These revenue losses are expected to increase to P196.02 billion or by 9.77 percent in 2017.