The Department of Finance (DOF), in partnership with the Participatory Governance Cluster-Open Government Partnership (PGC-OGP) led by the Departments of Budget and Management (DBM) and Interior and Local Government (DILG), and the Philippine Chamber of Commerce and Industry (PCCI) will stage a series of dialogues across the country this first quarter of 2018 to inform the public about the Duterte administration’s newly enacted Tax Reform for Acceleration and Inclusion (TRAIN) law and the proposed reform package on corporate taxation and the modernization of fiscal incentives.
This tax reform roadshow will be held in the cities of Makati, Baguio, Clark, Bacolod, Tacloban, Cebu, General Santos and Zamboanga with the support of the USAID’s Facilitating Public Investments Project (FPI) and PCCI.
DOF Undersecretary Karl Chua and Assistant Secretary Teresita Habitan will lead the panel of speakers from the government, while lawyer Benedicta Du-Baladad and Tomas Lipana, the co-chairpersons of PCCI’s Taxation Committee, will represent the business sector. Legislators from both Senate and House of Representatives have also been invited to speak in the roadshow.
The tax caravan is scheduled in Bacolod City (Jan. 31), General Santos City (Feb. 7), Subic/Clark (Feb. 13), Zamboanga City (Feb. 21), Makati City (Feb. 28), Cebu City (Mar. 2), Baguio City (March 7) and Tacloban City (March 23).
PCCI president Ma. Alegria Limjoco welcomed the initiative as a platform to solicit and generate business sentiments and positions on the proposed tax measure.
“We thank the DOF and the USAID-FPI for getting PCCI again as their partner in rolling out this campaign. We fully recognize the efforts of government to raise revenue to support its infrastructure projects and we hope that the proposed measure, once passed into law, would be beneficial for everyone.”
Edgardo Lacson, PCCI’s Director for Taxation, pointed out that lowering the corporate income tax is the rational next step after the reduction of personal income tax (PIT) rates under the TRAIN law, which took effect last Jan. 1.
“We cannot discount the fact that our country has the highest corporate income tax rate (both nominal and effective) in ASEAN. There is a need to reduce the rates to a level that will make us competitive in a field of countries competing for the same direct investment funds,” Lacson said.
On the fiscal incentives, Du-Baladad, a tax expert, agreed with the DOF’s position that the country needs to rethink its investment tax policy.
According to Du-Baladad, while the business community lauded the passage of the Tax Incentives Management and Transparency Act or the TIMTA in 2016, “it is high time the granting of tax incentives is rationalized to remove the redundancies and make incentives clearer and more accountable.
Following the enactment of the TRAIN, which slashed PIT rates while raising additional revenues for infrastructure and social services, the DOF submitted this January to the House of Representatives its proposal on corporate taxation and the modernization of fiscal incentives.
This proposal is Package 2 of the Duterte administration’s Comprehensive Tax Reform Program (CTRP).
Chua said the CIT rate will be reduced by 1 percentage point every time we save around P26 billion in tax incentives–which is equivalent to additional revenues of 0.15 percent of GDP–is reached the previous year by broadening the tax base and rationalizing fiscal incentives.
“We propose this method to ensure that this tax reform, which is Package Two of the CTRP, will be revenue neutral. Every one percentage point reduction requires P26 billion in counterpart revenues to keep revenue neutrality,” Chua said.
Finance Secretary Carlos Dominguez III has said the corporate income tax can only be lowered if there is a corresponding correction in the grant of fiscal incentives to businesses.
”Our plan is to lower the tax rate for corporations from 30% to 25%. But our proposal to the Congress is to allow us to do that only if there’s a reduction in the amount that we provide for incentives,” the finance chief said.
Chua said that along with paring the CIT rate, the DOF will ask the Congress to modernize the country’s fiscal incentives system to ensure that these are “performance-based, time-bound, targeted and transparent.”
“All tax incentives should not be perpetual because the government cannot go on subsidizing business forever. If a firm continues to be a losing firm or does not give back to the country in terms of jobs, for instance, it has no business being in business,” Chua said.
To improve compliance, Chua said the DOF is proposing simplifying tax rules for corporations, by among others, cutting the number of tax forms and procedures; reviewing the National Internal Revenue Code to improve general anti-avoidance regulations and transfer pricing and costs; and reducing the optional standard deduction from 40 percent to 20 percent of gross income.