Proposed tax reforms to attract, not deter, investments, says think tank

The second phase of the Duterte administration’s proposed tax reform package will result in more investments from companies that contribute more to the Philippine economy while reducing incentives on firms that unduly take advantage of the current incentives scheme, according to an economic think-thank.

In a press briefing, Action for Economic Reforms (AER) economist AJ Montesa also stressed that the so-called Tax Reform for Attracting Higher-Quality Opportunities or Trabaho bill will not be another round of excise tax increases, but will instead lower the corporate income tax rate and make the grant of fiscal incentives fairer and more accountable.

Speaking about the controversial tax reform proposal, he said described as a “myth” the contention that the new bill will result in the pulling out of investors.

“Package two offers more competitive incentives which will attract strategic firms, help them grow, and create more and better jobs,” Montesa said. “Only firms that are undeserving but take advantage of the current system might be scared off.”

Instead of making the country’s business environment uncompetitive as its critics claim, the new tax program actually provides more incentives such as the additional deductions for labor, training, research and development, infrastructure, accelerated depreciation, and net operating loss carry over, among others.

“These additional options will be made available to qualified activities through Trabaho, and not present in the current incentives system,” he said. “Moreover, firms can continue to avail of incentives every five or seven years so long as they qualify and innovate.”

The AER economist and researcher also pointed out that package two ensures that tax incentives are reoriented towards strategic growth industries for the future.

The Trabaho bill proposes to reduce the average corporate income tax rate to 25 percent from the current 30 percent in exchange for the gradual phaseout of incentives enjoyed by an estimated 3,000 firms enjoying tax breaks under over 200 special laws granted by 14 investment promotion agencies.

The Department of Finance argues that some of these firms have been enjoying these tax perks — meant only to assist companies in their startup phase — for over three decades now.

The proposed measures is being opposed by foreign business groups who say that removal of tax perks will result in these firms relocating to other countries with friendlier tax regimes.

During yesterday’s briefing, Montesa also debunked the contention that the tax reform program’s second package will be inflationary.

“Lowering the corporate income tax rate will help businesses reduce costs,” he said. “This will benefit over 90,000 small and medium enterprises. Furthermore, the Trabaho bill retains the incentives on inflation-sensitive sectors such as agriculture, energy, and telecoms. This should alleviate pressure for firms to raise prices.” /kga