Tax perks to continue under Citira

The proposed Corporate Income Tax and Incentives Rationalization Act (Citira) will continue to give away tax breaks to priority industries that will generate more jobs and create additional value-added in the economy, the Department of Finance (DOF) said Monday.

“We cannot dispute that the many industries receiving incentives have made valuable contributions to the economy and to the Filipino people. Many of them are important, but given that the current system is poised to subsidize more than two-thirds of the economy, policymakers need to make tough choices between which industries and activities to prioritize if we are to ensure that every peso given away as a tax incentive yields a net positive benefit to society,” Finance Undersecretary Karl Kendrick T. Chua said in a statement.

Citing a recent DOF study, Chua said that the industries being granted tax incentives under the Board of Investments’ (BOI) 2017 Investment Priorities Plan (IPP) accounted for 69.4 percent of the entire economy’s gross value added.

“Package 2 of the comprehensive tax reform program aims to make the incentive system performance-based, targeted, time-bound and transparent. Such a system will allow us to actually prioritize and provide superior incentives to specific industries, areas and activities for the right reasons, such as the creation of quality jobs, investments in research and development, and expansion in less-developed areas and areas recovering from calamity or armed conflict, among others,” Chua said.

He said that under the proposed Citira, for example, companies that would qualify for incentives might choose to avail themselves of up to 50-percent additional deduction on direct labor expense, up to 100-percent additional deduction on training and development expenses and up to an additional 50 percent on top of the 100-percent deduction now allowed on the purchase and use of inputs from domestic suppliers, which would benefit local industries and producers.

Once passed into law, Citira will allow the grant of fiscal perks only to sectors to be covered by the proposed Strategic Investment Priorities Plan (SIPP), the crafting of which will be shepherded by the BOI.

“Based on the BOI’s recent presentations, the first version of the SIPP will likely cover all industries currently receiving incentives to cushion them from the potential impact of the reform. However, the ultimate goal of Citira is to eventually limit incentives to activities that truly provide a net positive impact on society,” Chua explained.

Citira will not only rationalize the generous tax breaks that investors enjoy but also reduce the corporate income tax rate to 20 percent from the current 30 percent—the highest in Asean.