Leap of faith on Citira bill

Last week, the House of Representatives approved on third and final reading the proposed Corporate Income Tax and Incentives Reform Act (Citira).

Formerly named Tax Reform for Attracting Better and High-Quality Opportunities or the “Trabaho” bill, Citira is the second phase of the government’s tax reform program.

If enacted into law, the bill would, among others, reduce the present 30-percent corporate income tax to 20 percent over a 10-year period starting 2020.

It would also rationalize the fiscal incentives given to some businesses by putting time frames on them and linking their enjoyment to certain parameters, e.g., job generation, use of local inputs and workers’ training.

The House passed the Citira bill despite opposition from the Philippine Economic Zone Authority (Peza), the Department of Trade and Industry (DTI) and some foreign chambers of commerce and industry.

They said Citira would make the Philippines less attractive to foreign investments and motivate those already here to transfer their operations to neighboring countries with better fiscal privileges. The “exodus” could result in the loss of thousands of job opportunities for Filipinos.

The Department of Finance (DOF) appears to be unfazed by these dire predictions.

In its website, it explained in detail, complete with facts and figures, the reason behind the rationalization of fiscal incentives and the benefits the country would enjoy in the long run from such action.

The ball is now in the court of the Senate. Upon receipt of the House-approved bill, its ways and means committee would call public hearings to hear the views of the parties that stand to be affected by the Citira bill.

Since the Senate represents the last opportunity for the bill to be shelved or watered down, expect its critics to go all out in their lobbying efforts, including engaging in a media blitz, to get the senators to their side.

Although the President’s allies hold the majority in the Senate, there is no assurance the House version of the bill would be approved in its entirety.

If the DOF does not want a repeat of the Tax Reform for Acceleration and Inclusion (Train) Law—where some of its proposals were modified and, in the process, resulted in a substantial reduction in revenue collection—it has to go all out in convincing the senators that the House-approved Citira bill is in the country’s best interests.

Bear in mind that two of the oppositors, Peza and DTI, are not insignificant government offices and their stand on issues that relate to their mandate can’t be simply brushed aside.

Like the DOF, they perform government functions that are critical to efficient national governance.

They would not have taken a position on the Citira bill adverse or contrary to that of a fellow government office if, in their judgment, it is the right thing to do. More so, considering Finance Secretary Carlos Dominguez III is widely known (and has proven) to be very influential with the President because of ties that date back to their childhood days.

The DOF has to convince the senators that its faith in the Citira bill is grounded on reality and not on financial assumptions or projections.

Meaning, the reduction in corporate income tax would result in money to be used as additional working capital rather than for increasing dividends to stockholders or higher pay for the executives.

And if foreign investors pull out on account of the reduction or loss of their fiscal incentives, the loss in employment opportunities or slack in revenue collection would be made up by local corporations that stand to benefit from the Citira bill.

Bottom line, the DOF has to prove the anticipated benefits of the bill far outweigh its feared adverse effects.