The country’s business leaders have expressed their full support for the Duterte administration’s proposed reforms in corporate taxation and the grant of investment incentives, which they described as “a bold move” to sharpen the Philippines’ competitiveness in the region.
In a letter to Finance Secretary Carlos Dominguez III, the Management Association of the Philippines (MAP) said lowering corporate income taxes will put these on par with the rates imposed by the country’s ASEAN peers, while modernizing investment incentives will streamline overlapping laws and make such perks time-bound and based on performance.
The Department of Finance (DOF) has proposed these reforms under Package 2 of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) to level the playing field for business and make the system equitable, transparent and more accountable by, among others, removing perpetual tax holidays enjoyed by only a select group of investors, which is unfair especially to smaller enterprises that pay regular tax rates.
“[Package 2] is another milestone initiative for the government and a bold move that we believe will create a positive impact over-all. The MAP commits its continuing support for the passage of [Package 2],” the organization said in its letter to Dominguez dated March 7.
The MAP consists of some 1,000 members representing a cross section of CEOs and other top management positions from the largest local and multinational companies operating in the Philippines.
“We agree with the Department of Finance that [Package 2] will help the country become more competitive with the rest of the world by lowering the corporate income taxes from the current 30 percent, the highest among our ASEAN peers,” MAP said in its letter.
It also agreed with the DOF on “the need to rationalize and modernize the tax incentive system to make incentives time-bound, performance-based and not excessively complex with far too many different, even overlapping laws, rules and regulations.”
“It is necessary to widen the tax base and enforce better compliance. The relaxation of our bank secrecy laws, coupled with proper safeguards against abuse, is an essential tool in doing that. It will also encourage more to avail (themselves) of a general tax amnesty, which we support,” MAP said.
Underscoring the urgency of implementing corporate tax reforms, the MAP suggested that these be carried out starting in 2019, as “our ASEAN neighbors are contemplating even further reductions in their income tax rates – making this an important step.”
“We believe it is important to commit to a definite timeline for the reduction of income tax rates to have predictability that can help decision-making on investments and business plans,” MAP said.
Package 2 was submitted by the DOF to the House of Representatives in January upon the resumption of the second regular session of the Congress. The Constitution provides that all revenue measures should emanate from the House of Representatives.
Last March 20, Deputy Speaker Raneo Abu, Deputy Majority Leader Aurelio Gonzales, and Rep. Dakila Carlo Cua, the chairperson of the House ways and means committee, filed House Bill 7458, which seeks to reduce corporate income tax rates and modernize investment incentives. The measure contains several features similar to the DOF’s Package 2 proposal.
Earlier, Finance Undersecretary Karl Kendrick Chua made it clear that far from removing all fiscal incentives for businesses, the Duterte administration merely wants to harmonize and modernize such perks to ensure that these are “targeted, time bound, transparent and performance-based.”
Dismissing claims by certain quarters that such reforms would drive away businesses that are in the country already or are thinking of setting up shop here, Chua said investors themselves have cited four more important and pressing concerns than tax perks that they want the Philippines to address for them to bring in more investments, which are the infrastructure gap, inefficiency in government, corruption, and the high cost of doing business here, as shown by the results of the 2017 World Economic Forum survey.
Tax rates and incentives only ranked 5th among the concerns raised by investors in this survey, Chua said.
On top of modernizing tax incentives, he said the government must tackle the “real issues” raised by investors in the World Economic Forum survey, along with improving human capital, investing in infrastructure and relaxing foreign ownership restrictions to attract more investments.
Chua said a proper cost benefit analysis is now being done to determine the fiscal incentives that should be given to certain businesses.
He said incentives will still be provided to business activities so long as they qualify in the three-year Strategic Investment Priorities Plan (SIPP) and adhere to the key principles of being performance-based, time-bound, targeted, and transparent.
In comparison to other countries, Chua said the Philippines has an elaborate and complex incentives system that is already one of the most generous in the region, with 123 laws that grant investment incentives outside of the tax code and 14 investment promotion agencies authorized to give such perks.
The Philippines is the only country that gives incentives in lieu of all taxes (the 5 percent gross income-earned tax) that last forever, he noted. “We have been granting incentives for 50 years, and it is time we reevaluate whether the benefits are worth the cost.”
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