Around 1.4 million jobs are expected to be created between 2021 and 2029, when the corporate income tax (CIT) will have been cut by a third to 20 percent under the second package of the comprehensive tax reform package (CTRP) now pending in the Congress.
Department of Finance (DOF) estimates show that the proposed lowering of the CIT by 2 percentage points every 2 years starting 2021 until 2029 will create over a million jobs by freeing up more capital for firms to invest and hire more workers.
This tax reform, once approved by the Congress and enacted into law, will create an estimated 113,944 jobs in 2021 all the way up to 1.4 million in 2029, according to Finance Assistant Secretary Antonio Joselito Lambino II.
This is in line with Finance Undersecretary Karl Kendrick Chua’s earlier statement on the first Senate hearing on corporate tax reform wherein he emphasized the lowering of CIT’s positive impact on job generation.
“With lower tax rates, such a proposal is hardly inflationary while creating over a million jobs over the medium term as firms expand with more money at their disposal,” Chua said.
The DOF showed an increasing trend for the number of jobs that will be created for every 2-percentage point drop in the CIT rate.
At a 26-percent CIT rate in 2023, for instance, an additional 171,940 jobs will be created. The numbers will then increase to 252,031 additional jobs in 2025; by another 361,767 in 2027; and 511,021 more in 2029–or a total of 1.4 million jobs over the 10-year period.
This reform bill seeks to slash the CIT now pegged at 30 percent, which is the highest in the region, while at the same time rationalizing incentives enjoyed by just a select group of private companies, many of them in the country’s list of Top 1,000 corporations.
In contrast, some 90,000 small-and-medium enterprises (SMEs), and some of the hundreds of thousands more micro-enterprises have to pay the steep rate of 30 percent under the convoluted corporate tax system that has not been changed for over two decades now. SMEs employ around 33 percent of the local labor force according to 2016 data from the Department of Trade and Industry (DTI).
The House of Representatives has already passed its version of this reform proposal called the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill. The Senate is still discussing at the committee level its version of this measure authored by Senate President Vicente Sotto III and dubbed the Corporate Income Tax and Incentives Reform Act.
“This second package of the CTRP will level the playing field for business and spur greater economic activity that will spell more jobs in the long haul,” said Finance Secretary Carlos Dominguez III. “The CIT cut will make the business sector more competitive in the region and give a significant boost to SMEs that employ a majority of Filipino workers.”
In addition, Lambino said the proposed tax incentives reforms under this bill will also result in net employment gain, as it is very clear that firms that create more jobs will be prioritized in the granting of tax incentives under the “considerable generation of employment” criteria in House Bill No. 8083.
“This pro-investment tax reform package is seen to be even more attractive to firms because it will give them additional incentives on labor, domestic input and training under the proposed menu of tax incentives, while activities that already provide positive benefits to society, such as those that develop the countryside, create jobs and contribute to exports can continue to enjoy tax incentives,” he said.
He emphasized that it is high time for the government to modernize an outdated incentives system that has stymied productive investments, job creation, high value-export generation, and regional growth.
“With lower taxes and more performance-based incentives, firms’ behavior is directed towards expansion and creation of high-value and better-paying jobs, especially in the countryside, where firms are given additional two years of incentive,” he said.
Under the proposed bill, firms outside Metro Manila and adjacent urban areas are entitled to an additional two years of incentives on top of the regular five-year maximum to promote inclusive growth and rural development.
Dominguez and Chua earlier expressed hopes that the Congress could pass CTRP’s Package 2 soon enough, in consideration of President Duterte’s appeal.
During his 3rd State of the Nation Address (SONA) last July 23, the President called on both legislative chambers to pass the remaining CTRP packages before the end of 2018.