Foreign investors that are qualified and performing well have no reason to be worried over a pending bill in the Congress that seeks to reform the country’s convoluted corporate income tax (CIT) system because they will continue to enjoy incentives and an even better set of perks under the Duterte administration’s plan to make these time-bound, transparent, targeted and performance-based.
Finance Undersecretary Karl Kendrick Chua said the government’s goal is to modernize the current set of incentives being given to a select group of businesses that only pay a “forever” 5-percent tax on gross income earned (GIE), in lieu of all local and national taxes, even if these favored companies have failed to generate more jobs or contribute to the economy.
Chua said this current system is unfair to about 90,000 active small and medium enterprises (SMEs) that pay the CIT of 30 percent, which is the highest in the region.
“The government is pro-investment, pro-jobs and pro-incentives,” Chua said. “We will continue to give incentives to those that perform. But we will start to include sunset provisions on the incentives of those that are not performing. So what is there to fear if you are performing, if you are contributing exports, contributing to countryside development, jobs, and productivity?”
Chua said to make the CIT system fair and accountable, the Duterte administration is asking the Congress to reduce the CIT rate and rationalize the fiscal incentives system, which has become “inequitable and convoluted” as a result of 136 laws governing the grant of such investment perks, including those for 14 investment promotion agencies (IPAs).
Corporate tax reform comprises Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP).
The House of Representatives has already approved on third and final reading last Sept. 10 its version of the corporate tax reform bill known as the Tax Reform for Attracting Better and Higher Quality Opportunities (TRABAHO) Act. The Senate, meanwhile, has yet to approve its counterpart measure, which was authored by Senate President Vicente Sotto III and dubbed the Corporate Income Tax and Incentives Reform Act.
“What we are basically doing is to make our incentives more accountable, fairer, and, at the same time, give the same opportunity to some 90,000 SMEs that are also working hard, also delivering jobs and exports and productivity but paying the regular 30 percent. That is really what this whole reform is all about,” Chua said.
Chua assured investors that the set of incentives being pushed in the Congress by the Duterte administration through the Department of Finance (DOF) is even better than the current one.
“For instance, you can avail of the 50 percent more deduction on labor; 100 percent more deduction on training, on research and development; 50 percent more deduction if you buy local. And then the depreciation allowance is even better, and there is a longer net operating loss carryover,” Chua said, referring to the reforms as far “superior” than the current set of incentives that a select few enjoy.
Chua said the new set of incentives being proposed by the DOF, “when put together, can make our incentives system more competitive and performance-based.”
“And for some who have seen the light, they find it better,” Chua said. “Unfortunately, because of misinformation or being stuck in the past or not wanting to contribute better, they forget these positive sides of the reform.”
Chua urged the affected sectors to thoroughly read the measure, rather than base their positions on hearsay and opinions so that they can work with the government in explaining the true benefits of this CIT bill to the public.
The DOF earlier identified a total of 645 registered enterprises that continue to receive tax incentives even after 15 years in the business, proving that investment perks are given usually to big or multinational firms– many of them “inherently profitable”–have already become redundant and unnecessary.
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