The Department of Finance early next year will seek Congress’ speedy approval of a number of tax measures, including the second reform package that will cut corporate income taxes as well as review the sin tax regime.
Finance Secretary Carlos Dominguez III told reporters last week that the DOF would focus on pushing for the second package of Tax Reform for Acceleration and Inclusion (Train) Act, which he said was “almost ready.”
The second of five tax reform packages will cover corporate income taxation, whose draft bill will be submitted to Congress next year following the release of 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 were 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 tax to a reduced corporate income tax rate of 15 percent under the second package.
The second tax reform package will also “expand the coverage of the Fiscal Incentives Review Board to include all incentive recipients beyond government-owned and -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, DOF documents 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 earlier DOF estimates, the P34.8 billion in foregone revenues from the reduced corporate income tax rates would be offset by a similar P34.8-billion gain from the rationalization of fiscal incentives during the first year of implementation.
Under the second tax reform package, “the lower income tax rate must be offset by enough clawback of incentives,” according to the DOF.
Dominguez said the DOF “would also support the review of the Sin Tax Law for both alcohol and tobacco.”