DOF to push Trabaho bill for 18th Congress’ OK

The fiscal incentives being granted by the country’s investment promotion agencies (IPAs) such as the Board of Investments (BOI), Philippine Economic Zone Authority (Peza) and free port zones are a double-edged sword. These perks lure in local and foreign investors who wanted some relief from the high costs of jump-starting their businesses, but they also result in billions of pesos in foregone revenues for the government.

For over a decade now, the Department of Finance (DOF) had been moving to rationalize the tax incentives offered to investors and, hence, had been at odds with the Department of Trade and Industry, which was in charge of the IPAs and the granting of incentives.

In 2015, then President Benigno Aquino III signed into law Republic Act (RA) No. 10708, or the Tax Incentives Management and Transparency Act (Timta), aimed at improving the monitoring of the fiscal incentives extended and measuring the value they add to the economy to ensure that the revenue losses incurred to support investors did not go to waste. But Timta is just half the battle won for the DOF.

Finance Secretary Carlos Dominguez III had been arguing that investors needed not just tax perks to set up shop here, they also wanted better infrastructure, lower power costs and a big market for their goods and services, concerns that the government had been addressing.

Under the Duterte administration’s comprehensive tax reform program, the proposed second package on corporate income taxes added a sweetener so investors don’t get all bitter about removing or limiting some of the tax perks they currently enjoy. The Tax Reform for Attracting Better and Higher-quality Opportunities (Trabaho) bill will gradually reduce the income tax rate being slapped on firms to 20 percent from 30 percent at present—the highest in the Association of Southeast Asian Nations.

During a meeting this month, Finance Undersecretaries Karl Kendrick Chua and Antoinette Tionko told the Management Association of the Philippines (MAP) and the Makati Business Club (MBC) that Trabaho’s passage was high on the DOF’s legislative agenda for the upcoming 18th Congress.

At the tail end of the 17th Congress, Trabaho was passed in the lower House under the leadership of then Speaker Gloria Macapagal-Arroyo, but the measure stalled in the Senate as a number of senators wanted to ensure that the bill would not push foreign investors to pull out their money, especially in economic zones and business process outsourcing industry, a major dollar earner for the country.

In a report, MBC said Chua and Tionko told the business groups that the DOF would refile the “substantially” the same Trabaho bill that was already approved in the lower House.

In a chance interview on July 1, Chua told the Inquirer that the DOF would likely tap whoever would head the ways and means committees of the two chambers of Congress as potential sponsors of the five remaining tax packages, including Trabaho.

The DOF was also in talks with Albay Rep. Joey Salceda to make a big push for Trabaho’s swift reapproval in the lower House, especially as Dominguez had been targeting to pass the entire tax reform program by next year—after all, Salceda had been a major supporter of tax reform, and even coined the acronyms “Trabaho” and “TRAIN” for the first package.

According to MBC, the DOF’s Trabaho bill for the 18th Congress will still impose a sunset provision of two to five years for firms with existing incentives, after which they can apply under the proposed Strategic Investment Priorities Plan, a new set of perks that will replace the BOI’s Investment Priorities Plan.

For new applicants or those reapplying for tax incentives, they will be offered a reduced corporate income tax rate that is 10 percentage points below the regular rate for five years, on top of a maximum two-year extension.