SMEs welcome CITIRA

Date Posted : December 25, 2019

SMEs welcome CITIRA

Date Posted : December 25, 2019

An overwhelming majority of Filipino companies, including small and medium enterprises (SMEs), support the effort of the government to lower the corporate income tax (CIT) rate and modernize the country’s corporate income tax and incentives scheme for investors. A survey conducted in 2018 showed that 91 percent of SMEs support the Corporate Income Tax and Incentives Rationalization Act (or CITIRA), as it will allow them to be more competitive, expand their businesses, and create more opportunities for Filipinos.

Currently, most domestic enterprises are saddled with a CIT rate of 30 percent, which is the highest among countries in the ASEAN region. As the cost of doing business is high, Filipino companies have had to sell their products at a higher price, making them less competitive versus their regional counterparts.

Entrepreneur Bong Magpayo, owner of a small bakery, said that the 30 percent CIT rate is on top of the many other taxes slapped on a small business, which include local business taxes and VAT on goods. “After all these taxes, the 30 percent CIT is really burdensome, especially if you are a small businessman,” said Magpayo.

The proposed CITIRA of the Duterte administration will reduce the CIT rate from 30 percent to 20 percent and energize small and medium enterprise owners. “That is a welcome development for us. I hope the CITIRA bill will be passed,” said Magpayo, excited that he could use the savings to buy equipment and ingredients, grow his business, and expand his team.

On a global scale, CITIRA will bring the CIT rate to a level that is lower than the average rate in the ASEAN, which currently stands at 22.5%. This will allow the Philippines to become a more favorable investment destination for foreign firms.

Meantime, the government is not at much risk of losing revenues because the reduction of the CIT rate also comes with the harmonization of the tax incentives scheme to make it performance-based, time-bound, targeted, and transparent. CITIRA is a broadly revenue-neutral measure.

The Philippine Chamber of Commerce and Industry (PCCI) has been advocating for a modern corporate income tax system that will make the Philippines competitive where countries compete for the same foreign direct investments.

“The country right now has the highest corporate tax at 30 percent, putting the country at a disadvantaged position versus our ASEAN neighbors in terms of attracting foreign direct investments. High corporate tax similarly marginalizes micro, small, and medium enterprises because while they pay for the 30 percent CIT, many do not benefit from tax incentives. Government’s own estimates show that 99 percent of corporate taxpayers pay the regular tax rate of 30 percent,” said PCCI Chairman George Barcelon.

Richard Sanz, president of the Philippine Franchise Association (PFA), said, “CITIRA is an opportunity to improve the country’s corporate income tax and fiscal incentive system to attract more investments from domestic and foreign investors. We believe that this will invigorate our community of small to large franchises, both homegrown and international.”

According to Sanz, CITIRA will complement the efforts of PFA in expanding businesses and creating millions of jobs to support economic development and nation-building.

In a statement, several Philippine business groups – including the Bankers Association of the Philippines, Federation of Filipino Chinese Chambers of Commerce & Industry Inc., Financial Executives Institute of the Philippines, Foundation for Economic Freedom, Management Association of the Philippines, Organization of Socialized Housing Developers of the Philippines, Subdivision and Housing Developers Association, and the Tax Management Association of the Philippines – wrote, “[CITIRA] will not only make us more competitive in attracting foreign investments, but it will also make our domestic corporates at par with their counterparts, thus making them more competitive as they expand their operations outbound under an integrated ASEAN market.”

This article was published in Manila Bulletin on December 25, 2019.


Date Posted December 25, 2019

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