The Department of Finance is studying a proposal to reduce the 30-percent corporate income tax, the highest in Southeast Asia.
The proposal, put forward by the International Monetary Fund and other foreign institutions, is meant to give the Philippines a better chance of competing head on with its neighbors once the integration of Southeast Asian economies happens as planned in 2015.
A DOF official had suggested that the reduction of the corporate income tax be implemented together with the rationalization of fiscal incentives.
“The government will lose revenues if the corporate income tax is reduced, and so the proposal is to implement it side by side with the rationalization of fiscal incentives,” the official told the Inquirer.
Under the proposed rationalization of fiscal incentives, the bill on which has been pending in Congress for years, tax- and duty-free privileges enjoyed by various industries will be removed.
The DOF official, who declined to be identified, said the revenues to be generated by the government out of the removal of fiscal incentives should compensate for the lost revenues from the reduction of the corporate income tax.
The DOF is thus studying the extent of the reduction to make sure that the move will not lead to a net revenue loss for the government if fiscal incentives are removed, the official said.
The DOF was likewise evaluating whether the proposed cut in income tax would require a separate action from Congress or could be inserted as a provision of the fiscal incentives rationalization bill.
The DOF said the fiscal incentives rationalization bill was one of the few fiscal measures included in the Aquino administration’s list of priority bills.
It was also being pushed to prepare the country for Asean integration.
By 2015, the Philippines and the other nine members of the Association of Southeast Asian Nations (Asean) are supposed to have their economies integrated.
The Asean economic integration, under which goods and labor are free to move across borders of member-countries, is intended to increase business activities, accelerate growth, and boost incomes in the region.
However, countries that have uncompetitive policies will not get a big enough share of foreign investments that are expected to flow into the growing region.
Some economists said that with the 30-percent corporate income tax still implemented in the Philippines, the country will not be in a good position to take advantage of the potential rise in foreign investment opportunities.
Several online resource materials showed that the corporate income tax rate is set at 25 percent in Indonesia, Malaysia, Myanmar and Vietnam, 24 percent in Laos, 20 percent in Thailand and Cambodia, and 17 percent in Singapore.
Brunei has the same tax rate as the Philippines at 30 percent.