A group of eminent economists has called on the Congress to take “urgent action” in passing into law the Duterte administration’s proposed reforms in the corporate tax system to help fulfill its goal of making Philippine taxation “simpler, fairer and more efficient” and ensure that incentives that are given to businesses truly benefit the Filipino people.
In a statement of support, eight of the country’s leading economists said the “deficiencies” of the current corporate income tax (CIT) system have hampered the country’s growth and competitiveness—and that maintaining them could make the government miss its long-term vision of transforming the Philippines into a prosperous, high-income economy by 2040.
They lauded the efforts of the government, spearheaded by the Departments of Finance (DOF) and of Trade and Industry (DTI), to modernize the CIT system as part of the Duterte administration’s objective of making tax policy reform “a key pillar of socioeconomic policy and tool for fair and inclusive growth.”
The proposals of the DOF and DTI to overhaul the corporate tax system are contained in Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP).
“As Congress deliberates on the second package of the reform, we express our support for the main principle of a corporate tax system that is broad-based and competitive relative to our peers in the region. More importantly, lowering the corporate income tax rate will help entrepreneurs and small and medium enterprises thrive. However, in the interest of fiscal prudence, the lowering of rates should be in conjunction with the rationalization of fiscal incentives,” they said in their joint statement of support.
The statement was signed by:
· Former DOF Undersecretary Romeo Bernardo, who is also Global Source Philippine economist and vice chair of the Foundation for Economic Freedom;
· Prof. Dante Canlas of the University of the Philippines (UP) School of Economics, president-CEO of the Philippine National Oil Co. (PNOC) Alternative Fuels Corp, and former National Economic and Development Authority (NEDA) director-general;
· Gerardo Sicat, professor emeritus of the UP School of Economics and the first director-general of NEDA;
· Gilberto Llanto, board member and former president of the Philippine Institute of Development Studies (PIDS);
· Renato Reside Jr., assistant professor of the UP School of Economics and the first Filipino economist to compute the tax loss from fiscal incentives;
· Monetary Board member Prof. Felipe Medalla, who is also former NEDA director-general;
· Monetary Board member Bruce Tolentino, who is also former deputy director general of the International Rice Research Institute and undersecretary of the Department of Agriculture (DA);
· Arsenio Balisacan, chairperson of the Philippine Competition Commission and former NEDA director-general;
They pointed out that the tax incentives that are given to businesses “are public investments, and that their benefits should accrue to the Filipino people.”
“We stand with the Department of Finance and the Department of Trade and Industry that tax incentives should be performance-based, time-bound, targeted, and transparent,” they said.
The House of Representatives is set to deliberate on the corporate tax reform bill beginning this week.
Deputy Speaker Raneo Abu, Deputy Majority Leader Aurelio Gonzales, and Rep. Dakila Carlo Cua, who chairs the House ways and means committee, have filed the chamber’s version of the corporate tax reform measure in House Bill No. 7458.
“We affirm the need for this reform and we call on Congress to take urgent action to ensure its timely passage,” the economists said in their statement.
They said the reforms proposed by the DOF and DTI to correct the infirmities of the corporate tax system will “spur countryside development, promote a competitive business environment, and encourage inclusive economic growth.”
On incentives being performance-based, they said investment perks should be given to promote job creation, increase export sales, encourage research and development, and spread development to the countryside.
They likewise said that incentives as a public investment should not be committed in perpetuity to favor a select few and thus, these should be time-bound.
“Tax incentives that are given permanently discourage firms from becoming self-sufficient and stifle our ability to align incentives with strategic priorities as they evolve over time,” the economists said.
As public investments, incentives should also be targeted, so these should be given to industries that most strongly benefit the economy. “Incentives must align with national priorities,” they said.
Given that tax incentives are tantamount to foregone revenues that could have been invested in infrastructure and human capital, they said the public has the right to know what incentives are given to which industries and whether recipients are contributing to national development.
“Incentives are not the be-all and end-all of investment promotion. For our country to be truly attractive to investors, in the long run, the government needs to improve public infrastructure, human development, and the ease of doing business as long-term solutions to development and competitiveness,” the economists added.
Their statement of support for Package 2 was in response to the call of Finance Secretary Carlos Dominguez III last week for these eminent economists to rally behind proposals to improve the corporate tax system in which a small select group of top enterprises enjoys preferential CIT rates of just six to 13 percent while an overwhelming majority comprised mostly of small- and medium-scale enterprises (SMEs) pay the regular rate of 30 percent.
Dominguez said that aside from having the highest CIT rate of 30 percent in the region, the country’s corporate tax system is also plagued with structural defects, such as having 14 investment promotion agencies (IPAs) and 315 laws outside the national tax code that grant both investment and non-investment incentives to certain businesses.
These incentives, Dominguez said, are enjoyed only by a select few that pay much less—around six to 13 percent only in terms of CIT. Worse, they get to enjoy such perks “forever.”
With 123 laws that grant investment incentives and 192 others that provide non-investment incentives to this elite group, the system has become “fundamentally unfair” especially for SMEs, which pay the regular CIT rate of 30 percent, he said.
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