Finance Undersecretary Karl Kendrick Chua has challenged the Joint Foreign Chambers of the Philippines (JFC) to look more closely at the proposed second package of the comprehensive tax reform program (CTRP), also known as the Corporate Income Tax and Incentives Rationalization Act or CITIRA bill, instead of prematurely fretting over imagined job losses.
Chua maintained this tax reform plan will actually create 1.5 million jobs as he reiterated his call on the chambers’ leaders to back their claims about the domestic jobs that will ostensibly be affected or lost once the CITIRA bill becomes law, by providing the names of the companies and the number of jobs to be affected in each company.
His statement was in reaction to the claims of John Forbes, representing the JFC in the Senate committee hearing last week, that the passage of the CITIRA bill will lead to the loss of jobs. Forbes is senior adviser at the American Chamber of Commerce of the Philippines (AmCham), which is a JFC member-organization.
“Our numbers are transparent. Companies will reasonably invest at least 50 percent of their additional money from the reduction of the corporate income tax rate (CIT) rate in growing their business. This will mean more jobs–a total of 1.5 million jobs actually. Morever, the new menu of incentives for investors, as proposed in CITIRA, will also encourage job creation and upskilling.”
“We hear them. We have been listening to them and asking them in almost every meeting for two years now to give us more details on what kinds of jobs they are referring to, in which industries, and in which areas of the country, so we can help. Secretary Lopez of the Department of Trade and Industry (DTI), who chairs both PEZA (Philippine Economic Zone Authority) and BOI (Board of Investments), already said that we are open to continue supporting footloose industries. So why won’t they give us more details on their claims? Their lack of transparency is a little bit suspicious; don’t you think?”
“I also want to ask them if they have included in their calculations the jobs that will be created when JFC member-companies are able to expand using the savings from a lower CIT rate.”
“I surmise that many members of the JFC-affiliated chambers are actually companies paying the regular rate. They will benefit from a lower regular corporate income rate. I hope these companies were consulted and considered by their leadership. We must remember that this reform must be treated as a package. We cannot pursue one aspect, which is the reduction of the CIT rate, without pursuing the other, which is the modernization of the fiscal incentive system, if we want to be fiscally prudent.”
“I also challenge the members of the foreign chambers currently receiving incentives to consider and calculate for themselves what they stand to gain from CITIRA. We want to transform the incentive system to reward job creation, among other activities that are directly beneficial to the Filipino people.”
“For instance, the highly labor-intensive industries can avail of the superior incentives in the form of an additional 50 percent deduction on labor, under CITIRA. Some companies we have met claim that labor accounts for 60 percent of their revenues. So instead of deducting around 60 percent from revenues, they can deduct 90 percent, and reduce their taxable income. Under CITIRA, the firm gets a performance-based incentive that guarantees jobs.”
“Another example of a superior incentive is the additional deduction for training. If locators train their workers to improve their skills, they get additional 100-percent deduction or a total of 200-percent deduction on their training costs. You know, the supply of skilled labor is one problem that the BPO (business process outsourcing) sector has been experiencing for 10 years. The proposed system is designed to reward them for training their employees. They can essentially bill part of their expense to government.”
“One more superior incentive is the additional 50-percent deduction on local purchases of inputs to link small and medium enterprises (SMEs) to the supply chain. This will further enable SMEs to grow and create jobs.”
He also added that under CITIRA, the one-stop shop functions of the investment promotion agencies (IPAs) like PEZA remain, “so there is nothing to be afraid of.”
“So I am not sure why the leaders of some foreign chambers want to keep the present system that incentivizes profit, rather than incentivizing the behavior that directly benefits the Filipino people. Creating jobs and ensuring that our citizens are prepared for the employment demands of the future are the highest priorities of this reform,” he said.
President Duterte reiterated in his 4th State of the Nation Address (SONA) last July his request for the Congress to pass Package 2 of the CTRP—the CITIRA bill—that aims to energize micro, small and medium enterprises (MSMEs) by gradually reducing the CIT rate from 30 percent to 20 percent. In his SONA, President Duterte said Package 2 would benefit MSMEs.
The bill also seeks to reform the country’s fiscal incentives system to make it performance-based, targeted, time-bound, and transparent.
Following the President’s directive, Finance Secretary Carlos Dominguez III said the proposed CIT cut and rationalization of incentives will indeed boost MSME growth because under the current corporate taxation system, a select group of 3,150 corporations registered under IPAs enjoy discounted effective CIT rates of 6 to 13 percent while small and medium-sized businesses, which employ a majority of Filipino workers, pay the regular tax rate of 30 percent, which is the highest in the region.
The CITIRA bill was approved in the House of Representatives last Sept. 13 and is currently undergoing deliberations at the committee level in the Senate.