Approval of tax package before year’s end dims

As the Senate took a one-week break following the Philippines’ hosting of the 30th Southeast Asian Games, Finance Undersecretary Karl Kendrick Chua said it would be “more challenging” to pass the Corporate Income Tax and Incentives Reform Act (Citira) bill before the end of the year.

Now comes Trade and Industry Secretary Ramon Lopez announcing that a new Citira bill would be filed in the Senate this month or early next year to address the “specific needs” of companies fearing increased costs once tax incentives have been rationalized.

Lopez said during his keynote speech at this year’s manufacturing summit that the new bill would be filed by Sen. Pia Cayetano, chair of the senate’s way and means committee.

Lopez, however, told reporters on the sideline of the summit that he has not yet seen the contents of the new bill, although he said that the Department of Trade and Industry (DTI) has already relayed to Cayetano its position on the Citira.

Citira will slowly lower the corporate income tax for companies that do business in the Philippines, an aspect that many players welcome since the tax is one of the highest in
Southeast Asia.

But the bill, which was already passed in the House of Representatives, has drawn a lot of criticism for its move to rationalize tax incentives. Critics fear this would lead to job losses after companies fail to cope with the rising cost of doing business once tax perks have been removed.

“What the stakeholders can expect is [a bill] that would address the specific interests [and] specific needs of the stakeholders. That’s what we could say is the principle moving forward,”
Lopez said.

Thousands of companies in the Philippines enjoy tax breaks such as income tax holidays, while everyone else pays a hefty 30 percent corporate income tax.

While others might call the setup unfair, defenders of status quo claim that tax incentives attract companies—such as multinational firms—to choose the Philippines as their production hub, instead of bringing their projects to other countries in Southeast Asia.

Many of these companies, such as business process outsourcing firms and manufacturers, are located in economic zones. While they serve overseas markets as part of an international supply chain, these businesses employ more than a million Filipinos.

Cayetano has until Dec. 20 to file the bill, after which Congress will be on a break up to Jan. 19 next year.

This will delay the timetable of the Department of Finance, which had hoped that the Citira bill would hurdle Senate approval this month.

As for the higher taxes on alcoholic drinks, heated tobacco and vaping products under package “2 plus,” DOF’s Chua told reporters that the measure was already in “advanced” stages in the Senate as interpellations were coming to a close.

“I think there’s a big chance that it [package 2 plus] will be passed [by yearend] and the bicameral [conference committee] can happen to reconcile the (House and Senate versions),” Chua added.

As for the second tax package or Citira aimed at rationalizingthe fiscal incentives being enjoyed by investors while gradually reducing the corporate income tax rate to 20 percent from 30 percent at present—the highest in Asean, Chua was less optimistic it could be passed before Congress goes on Christmas break.

“Package two will be more challenging because of that one-week time that there will be no session” in the Senate, Chua said.

Finance Secretary Carlos G. Dominguez III had told reporters last week that he was still hopeful “there will be enough time for Citira.”

“We hope that we can finish early before the end of the year. There are very few days and there are lots of issues so that’s what might drag the implementation. But we think that there is still a good fighting chance that it [Citira] gets done this year,” Dominguez said.

In a statement Monday, Dominguez again pushed for the Citira bill, saying it would encourage more investments in our economy as well as induce better tax compliance.

“In turn, we seek to rationalize our fiscal incentives to create a level playing field for our enterprises and attract new players to compete. To be clear, we are not eliminating fiscal incentives. We want to keep granting incentives for the right reasons and for the right investments. We want these incentives to be performance-based, time-bound, specifically targeted and fully transparent. We just want to adhere to standards very similar to that of other countries like Singapore and Malaysia,” Dominguez said.

Besides Citira, Dominguez also cited the need to pass the other tax reform packages concerning capital markets, land valuation and general tax amnesty.The financial reform package called the Passive Income and Financial Intermediary Taxation Act (Pifita) “will level the playing field and develop our capital markets to attract more investors to take part in our infrastructure program,”

Dominguez said, adding that simplifying the tax system in the financial sector would also help lower insurance costs, encouraging more Filipinos to avail themselves of financial protection from loss of life, property and damages incurred from natural disasters. INQ