The Philippines’ corporate income tax rate—Asean’s highest, currently at 30 percent—can slide to 25 percent during a one-time, big-time reduction planned in July if Congress will heed the economic team’s pitch in its proposed COVID-19 recovery program.
Called the Philippine Program for Recovery with Equity and Solidarity or “PH-Progreso,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua told the online “Sulong Pilipinas” youth workshop on Thursday (May 14) that this plan eyed for implementation between June and December 2020 will seek budget and procurement flexibility.
This involved rearranging priorities in the P4.1 trillion 2020 budget, giving priority to resuming Build, Build, Build, creating jobs and raising incomes, infusing equity and liquidity into struggling companies and guarantees in the financial sector and targeted tax incentives for investors.
Through the proposed PH-Progreso, the economy may achieve a “V-shaped” recovery, Chua said, after first-quarter gross domestic product (GDP) shrank by 0.2 percent and the second quarter was expected to contract deeper into recession territory.
Last Tuesday (May 12), the economic team projected GDP to decline by 2-3.4 percent in 2020.
To recuperate, the economic team was pitching to Congress three bills:
- Bayanihan 2 for spending and capital support to restore consumer jobs and incomes, a follow up to the Bayanihan to Heal as One Act which gave President Rodrigo Duterte additional powers to deal with COVID-19
- Corporate Recovery and Tax Incentives for Enterprises Act (Create), an upgrade version of the pending proposed Corporate Income Tax and Incentives Reform Act (Citira)
- The proposed 2021 national budget of P4.18 trillion approved by the Cabinet-level Development Budget Coordination Committee (DBCC)
Through Create, Chua said there would be an across-the-board, immediate drop in corporate income taxes to 25 percent by midyear. Under Citira, the tax reduction would be spread in 10 years until it reached 20 percent.
Chua said Create would extend net operating loss carryover (Nolco) to five years, instead of three years under the Tax Code, while “losses in 2020 can be credited to future tax payment.”
According to Chua’s presentation, new investors will enjoy “targeted, time-bound, and tailor-fitted tax incentives to proactively attract the right types of investment .”
For existing investors, there will be “no change in present incentives for the next four to nine years,” Chua said.
Investors venturing into the countryside will get “targeted and time-bound tax incentives” in support of the Balik Probinsiya, Bagong Pag-asa program of President Rodrigo Duterte, according to Chua.
The Fiscal Incentives Review Board would manage and decide the grant of tax incentives “to improve governance,” he said.
Last Tuesday (May 12), Finance Secretary Carlos G. Dominguez III said the Department of Finance (DOF) wanted to give the President a direct hand in the grant of “flexible” tax incentives to attract more investments during the COVID-19 crisis.
“Enhancements under a more COVID-19-responsive version of the bill could include the power of the President, upon recommendation of the FIRB, to grant a mix of incentives that better suit an investor’s unique needs,” Dominguez had said.
On Bayanihan 2, Dominguez told a press conference that it will involve infusing an additional capital of P50 billion to be divided 70:30 between the state-run lenders Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP), on top of another P20 billion to be infused into the unified Philippine Guarantee Corp. (Philguarantee) in order to provide liquidity and provide insolvency to micro, small and medium enterprises (MSMEs).
Dominguez said the economic team planned to put up a joint venture between Landbank and DBP which “will be empowered to buy bonds, preferred shares or common shares in qualified companies that need support from the solvency support.”