Lower taxes for ‘footloose’ firms eyed

The government might give a reduced corporate income tax (RCIT) to “footloose” companies, or those that could easily pull out and move to other countries after a slight change in the business environment.

Trade Secretary Ramon Lopez said this in his speech during the Manufacturing Summit last week, defining “footloose industries” as those that “rely solely on low labor cost or [do] not require high technology but are needed as part of the supply and value chains and whose operations are sensitive to any cost increases.”

This is just one of the changes being considered for the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, which will lower the corporate income tax but rationalize tax perks.

Under the Trabaho bill, the RCIT is part of a list of incentives that could be given to a qualified project.

The RCIT will be lower than the CIT, which will reach 13 percent and 18 percent in 2029, respectively, under a slow but scheduled decrease in the tax rates.

How far the government will commit to the idea of giving footloose firms an RCIT is still unclear, given that details are still being fleshed out.

Lopez, however, quickly dismissed the term “footloose” in his later interview with reporters. Pressed for more details, he said the distinction among industries would not matter anyway once the bill is passed.

However, a reliable source confirmed to the Inquirer that the government was indeed looking for ways to make certain industries stay, especially if their costs spike once their old project falls under the regular CIT.

This, like Lopez said, will be done by putting their performance under review, possibly every year. For each year that they meet pre-agreed targets such as value of exports, then they will qualify for another RCIT.

“For the existing [firms], we have sunset provisions [in the Trabaho bill]. But after the sunsetting, once they go back to the regular [CIT], they might leave,” the source said.

“So what we’re saying is we are looking at mechanisms to still retain them. We see this applicable to export-oriented and highly mobile investments,” the source added.

Other possible amendments, Lopez said, include a 10- or even 15-year transition period for firms in economic zones who pay the gross income earned (GIE) in lieu of local and national taxes.

Moreover, Lopez also suggested that the new tax regime might still keep the GIE tax as long as it would be based on performance, instead of the status quo wherein the perk could last forever.