Tax plan seen hurting small firms

The Duterte administration’s second tax package will hurt smaller firms if it gives tax perks based on performance as this will favor only those that are “already successful to grow even bigger.”

This was the stand of the Philippine Exporters Confederation Inc. (Philexport), which had opposed some provisions of House Bill 7458, including those that it claimed would be discriminatory against micro, small, and medium-sized enterprises (MSMEs).

The group said it sent a position paper to Congress voicing its opposition, although it noted that exporters supported the bill’s move to lower the corporate income tax.

“The proposal of having any track record/performance is antidevelopment and anti-MSME as it rewards those which are already successful to grow even bigger, exacerbating the growing gap between rich and poor sectors of the economy,” the paper said.

The bill is the House of Representatives’ version of the government’s second tax package, which seeks to lower corporate income tax while rationalizing the tax incentives the government offers investors.

There are a number of conditions that must be met before a company can be eligible for the new set of tax perks under the second tax package.

According to the bill, the project must qualify under the list of the government’s preferred business activities, which will be detailed under the so-called strategic investments priority plan (SIPP).

On top of that, the company must satisfy “performance targets” that will be decided by the SIPP such as export sales, actual investments, actual job creation and investments in lagging regions.

Philexport said that basing incentives on export performance effectively disqualifies startups in particular from availing themselves of badly needed tax and customs incentives.

Instead, the group said it believed that “incentives should be provided on such need-basis to help improve performance rather than as a reward for already good performance.”

The proposed second tax reform package is expected to create not only more but also better jobs as the government will grant incentives to investments generating employment opportunities, according to the think tank Action for Economic Reforms (AER).

“The government’s push to reform the fiscal incentive regime will encourage businesses to hire more people and upgrade the skills of existing workers by building backward and forward industry linkage as among the criteria to qualify for fiscal incentives,” AER senior economist Jo-Ann Diosana said in an earlier statement, noting that pending bills in the Lower House provided for double tax deductions to be granted to businesses that will hire marginal labor yearly as well as train current employees.

“The rationalization actually intends to have a clear set of criteria as a condition to receiving incentives and one of the criteria is the generation of full-time, regular employment,” Diosana said.