Finance Secretary Carlos G. Dominguez III remained optimistic Congress would pass the Duterte administration’s second tax reform package within the one month left before legislators took a Holy Week break.
The second package seeks to reduce corporate income tax and bring reason to tax incentives being enjoyed by investors.
When asked if he remained hopeful Congess would pass the proposed Corporate Income Tax and Incentives Rationalization Act (Citira) before legislators took a break on March 13, Dominguez had a short answer: “Yes, I am.”
Sen. Pia Cayetano, Senate ways and means committee chair, was supposed to sponsor the committee report on Citira last week but it was cancelled.
In a speech at the Wallace Business Forum last Friday (Feb. 14), Dominguez said he clings to hope Citira would become law by March.
“It will bring down our corporate income tax rate from the highest in Asean to the regional average,” Dominguez said of one of the features of Citira.
“Our high corporate tax rate has been an effective deterrent to foreign investments, making us the regional laggard in this regard,” Dominguez said.
As proposed, Citira would gradually reduce the 30 percent income tax of companies to 20 percent in 10 years.
Dominguez added that the proposed law would also bring rational to the “badly tangled incentives regime and replace this with a targeted, transparent, performance-based and time-bound system.”
“The old tax incentives scheme entrenched old businesses while discouraging new enterprises from competing in the market,” Dominguez said.
The incentives mess, he said, was “the result of 13 separate agencies independently awarding their own incentives packages, some in perpetuity.”
“The old system forced government to forego hundreds of billions in revenues,” Dominguez said.
He cited records in 2017 when the government gave out P441 billion in tax discounts and exemptions to 3,150 companies.
“This select group of firms, which account for less than half of 1 percent of almost a million companies currently registered in the Philippines, pay discounted tax rates of around 6-13 percent,” the finance chief added.
“Some of these firms cheat the government of some P63 billion by abusing transfer pricing rules or by shifting profits and costs to reduce tax liabilities,” Dominguez said.
The total government loss, he added, “is a staggering P504 billion in one year alone.”
Citira, according to Dominguez, would adopt “best practices” such as those in Malaysia, Thailand and Singapore.
This would “ensure a truly contested market that will benefit consumers and ensure that the healthiest enterprises survive,” he added.
As Citira was likely to generate more investments, Dominguez said at least 1.5 million new jobs would be created.
Dominguez said two other pending tax reform packages—Passive Income and Financial Intermediary Taxation Act and real property valuation reform bill—could be passed “later this year.”