Package 2: Corporate Income Tax and Incentives Reform Act (CITIRA)

Package 2 of the Comprehensive Tax Reform Program (CTRP) seeks to lower the corporate income tax (CIT) rate gradually from 30% to 20%, reorient fiscal incentives toward strategic growth industries, and make incentives available to investors who make net positive contributions to society.

Legislative status

  • House of Representatives: Approved on third and final reading (10 Sept 2019)
  • Senate: Sponsorship of the bill by Ways and Means Committee Chairperson Senator Pia Cayetano (19 Feb 2020)

Why the reform is needed

Problem 1:

The Philippines currently imposes the highest corporate income tax (CIT) rate in the ASEAN region. This hampers the country’s ability to compete with other countries with a lower CIT rate.

Comparative CIT rates in ASEAN

Solution 1:

Package 2, also known as the Corporate Income Tax and Incentives Rationalization Act (CITIRA), seeks to reduce the corporate income tax rate to make it regionally competitive and bring back jobs. This measure will benefit more than 99% of companies, most of which are micro, small, and medium enterprises (MSMEs), who employ the majority of Filipinos. Savings from a lower corporate income tax rate will also allow companies to expand and create even more jobs. This measure, as proposed by the Department of Finance, is expected to create up to 1.5 million jobs.

 

Problem 2:

We have a corporate tax incentive system that is overly generous to a few companies at the expense of the majority.

In 2017 alone, the Filipino people granted PHP 441 billion (or 2.8% of GDP) in tax incentives to only 3,150 companies, including those on the elite list of Top 1,000 corporations. These companies pay an effective discounted corporate income tax rate of 6 to 13%.

In contrast, under the current corporate taxation system, firms with no incentives, which include almost all of the country’s 90,000 small and medium enterprises (SMEs), pay the regular CIT rate of 30 percent of their net taxable income–the highest in the region.

 

Companies that do not receive incentives are subject to the regular rate of 30% Companies that do receive incentives pay an effective rate of only 6 to 13%

 

The Philippines is also the only major economy in the world with a system that grants incentives to companies in perpetuity or “forever.” All other countries have a maximum duration and it applies only to few highly targeted industries and is not automatically given.

Every peso granted as tax incentive is a peso off the budget that could have been spent for infrastructure, health, education, and social protection that benefit all, and not only a few. Around half of these incentives granted are worth it and yield a net positive benefit to the Filipino people; however, around half of these incentives are unnecessary or redundant.

PHP 441 billion of foregone revenues in 2017 could have funded…

Foregone revenues in 2017

 

Solution 2:

Package 2 seeks to promote a fair and accountable tax incentives system to make sure that every peso granted as a tax incentive yields a net positive benefit to society and that the industries and locations that deserve help are truly supported.

Under Package 2, incentives will be:

Package 2 principles

 

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