DOF moves submission of 2nd tax reform package to January
The Department of Finance will pitch the second package of the comprehensive tax reform program to Congress in January next year, as it first focuses on securing approval for the pending bill aimed at slashing personal income tax rates while jacking up taxes on consumption.
“I think we should finish the package one first before we discuss the package two—probably we will move it three months down, so by January,” Finance Secretary Carlos G. Dominguez III told reporters Friday.
The DOF’s previous plan was to start the ball rolling on the second tax reform package covering corporate income taxation by October this year.
“It is better for us to concentrate on the current issues before we discuss another one,” Dominguez pointed out, as the first package awaits Senate approval.
A DOF document in June showed that the second of five tax reform packages will mainly be based on the results of the cost-benefit analysis of investors’ tax perks under the Tax Incentives Management and Transparency Act (Timta).
A comprehensive review of the country’s tax incentives regime had been mandated under the Timta Law to give an overview of the benefits as well as the costs of giving away fiscal perks to investors.
The second tax reform package will bring down the corporate income tax rate from 30 percent at present to 28 percent in 2019 and 25 percent in 2021, similar to the rates in neighboring countries.
Fiscal incentives will be rationalized under the second package such that only those that are performance-based, time bound, targeted and transparent will be granted to investors.
As for existing tax incentives, a sunset provision of a maximum of five years will be put in place.
Also, the government will replace the 5-percent gross income earned tax to a reduced corporate income tax rate of 15 percent under the second tax package.
The second package will also “expand the coverage of the Fiscal Incentives Review Board to include all incentive recipients beyond government-owned and/or -controlled corporations” while also reviewing the tax incentives being given away by investment promotion agencies such as the Board of Investments, the Philippine Economic Zone Authority as well as other economic zones, the DOF document showed.
In general, the second tax package will “enforce the minimum corporate income tax” as well as “simplify the corporate income tax system,” the DOF said.
Based on DOF estimates, the P34.8 billion in foregone revenues from reduced corporate income tax rates will be offset by a similar P34.8-billion gain from the rationalization of fiscal incentives during the first year of implementation.
“The lower income tax rate must be offset by enough claw back of incentives,” hence revenue-neutral, the DOF noted.
The three other tax reform packages will involve property taxation, capital income taxation, as well as health, environment and luxury taxation, according to the DOF.
