The Department of Finance will pitch corporate income tax reforms to Congress by the second half as it is optimistic of passing by midyear the first package aimed at easing the burden on income tax earners while increasing taxes on consumption.
The House ways and means committee is expected to approve today House Bill No. 4774, which contains the DOF’s proposal to lower personal income taxes, broaden the value-added tax (VAT) base by cutting down on exemptions, increase excise taxes on petroleum and automobiles as well as reduce the estate and donors’ tax rates.
The DOF will “work very hard” such that when Congress resumes in May following its break starting at the end of this week, the first tax reform package will hopefully be passed by June or July, Finance Undersecretary Karl Kendrick T. Chua told reporters on the sidelines on the Economic Journalists Association of the Philippines’ business journalism seminar over the weekend.
As for the second package that will introduce corporate income tax reform while rationalizing fiscal incentives, the DOF will come out with the proposal by the third or fourth quarter, following analysis of data mandated under Republic Act No. 10708 or the Tax Incentives Management and Transparency Act (Timta), Chua added.
Under the second package, the DOF is looking to reduce the corporate income tax rate over time to 25 percent from 30 percent at present and simplify provisions to improve compliance.
A comprehensive review of the country’s tax incentives regime had been mandated under the Timta Law to give an overview of both the benefits as well as the costs of giving away fiscal perks to investors.
“The corporate income tax reform package is really the next one because we are just waiting for the Timta data. Once we have the data, we will analyze the cost and benefit of these incentives and then decide how we will proceed,” Chua said, adding that the next package will be data-and evidence-based.
Under RA 10708, registered businesses are required to file a complete annual tax incentives report to the investment promotion agency (IPA) from which they get tax perks. The reports will be submitted by IPAs to the DOF as well as to the Bureaus of Customs and of Internal Revenue.
To monitor and analyze the grant of tax incentives, the DOF was mandated to maintain a single database as well as submit to the Department of Budget and Management the following: Actual amounts, estimates of claims, current year’s programmed amounts and the following year’s projected amount of tax perks to be given away.
State planning agency National Economic and Development Authority, meanwhile, must conduct cost-benefit analysis on the incentives to determine their impact on the economy.