Rather than make an 11th-hour appeal to President Duterte to reconsider his own directive supporting corporate income tax (CIT) and fiscal incentives reform that will benefit more than 99 percent of businesses, the Philippine Economic Zone Authority (PEZA) should explain to Filipino taxpayers why it insists on subsidizing at their expense the multibillion-peso dividends and profits of large corporations that do not actually need such perks, a Department of Finance (DOF) official said.
Finance Assistant Secretary Antonio Joselito Lambino II said the Duterte administration’s proposal is to rationalize tax incentives now enjoyed by just a select group of mostly big businesses located in large cities, and level the playing field for some 90,000 small and medium enterprises (SMEs) all over the country that currently pay the CIT rate of 30 percent, which is the region’s highest.
Lambino explained that the second package of the Comprehensive Tax Reform Program (CTRP) is not eliminating tax incentives altogether, as the proposed bill will actually continue to provide incentives to businesses, including SMEs, that will lead to increased investment inflows and create more jobs.
“PEZA (Director General Charito Plaza) is free to talk to the President. But the President already approved this comprehensive tax reform program as early as January 2018 in a Cabinet meeting and reiterated this in his State-of-the-Nation Address (SONA). We should not stand in the way of a presidential directive,” Lambino said.
Lambino was responding to reports quoting Plaza as saying that she will talk to the President about her misgivings over the CIT reform bill now pending in the Congress.
Contrary to Plaza’s claim that neither PEZA nor its locators were consulted in the crafting of Package 2, Finance Undersecretary Karl Chua recalled that several consultations were held with PEZA and other stakeholders.
“In fact, we took into consideration PEZA’s comments, which was why several changes were made to the original Package 2 proposal,” Chua said. “During our consultations with Director General Plaza, she even agreed to the principles of Package 2—that it be performance-based, targeted, time-bound and transparent.”
Thus, Chua said, he was puzzled as to why Plaza had apparently changed her mind and is now opposing this tax reform bill that aims to benefit struggling SMEs rather than protect a few firms with oversized profit margins.
Following such consultations with PEZA officials and industry players, Chua said that several adjustments were made to Package 2 to take into account their concerns.
These adjustments include retaining PEZA’s power to extend incentives to most projects, keeping the one-stop-shop function, and retaining the provision “in lieu of local business taxes” on the grant of special rates for locators.
The House of Representatives approved last Sept. 10 its version of CTRP Package 2 dubbed the Tax Reform for Attracting Better and Higher-quality Opportunities Act (TRABAHO). The Senate, meanwhile, is still deliberating the CIT reform bill introduced by Senate President Vicente Sotto III and called the Corporate Income Tax and Incentives Reform Act.
Chua made it clear that the DOF remains open to discuss with PEZA officials their lingering concerns about Package 2, in keeping with the President’s call to have this tax reform signed into law by the end of the year.
Lambino said that the status quo of dangling tax incentives as a band-aid solution to make up for the structural defects of the business environment, which the government has been doing for over 50 years, has not encouraged export diversification and innovation.
“Instead, the outcomes are corporate geese fattened from incentives granted forever, declining export competitiveness, and foreign direct investment (FDI) inflows that remain lackluster if compared to our neighboring countries,” Lambino said.
He added that the TRABAHO bill will reverse this unfair setup because it “favors investors that support our development objectives, which are: to create more and better jobs, promote research and development, encourage innovation, stimulate domestic industries, promote countryside development, and diversify our product base to higher-value exports.”
Earlier, the DOF said that for 2015 alone, the government gave away P86.3 billion-worth of income tax incentives to firms that paid out a total of P141.8 billion combined in dividends to their respective shareholders.
Data from the Securities and Exchange Commission (SEC) and those reported by investment promotion agencies (IPAs) as mandated under the Tax Incentives Management and Transparency Act (TIMTA) show that these declared dividends were 164 percent of the income tax incentives received by firms from various sectors.
Such data showing that certain enterprises declared dividends that are way above the tax perks they receive from the government prove that many of them are inherently profitable and no longer need such perks for their businesses to prosper here in the Philippines, Lambino said.
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