Exporters back cut in corporate income tax to 25%

The country’s exporters are backing the proposal of economic managers to reduce the corporate income tax (CIT) across the board to 25 percent this July, after the pandemic has prompted the government to revisit its tax reform package.

The Philippine Exporters Confederation Inc. has supported the newest version of the Duterte administration’s second tax reform bill, now called the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).

It is the latest version of what was previously known as the Corporate Income Tax and Incentives Reform Act (Citira), which will lower the country’s CIT while rationalizing tax incentives offered to companies.

Citira was to lower the CIT gradually over a 10-year period from the current CIT rate of 30 percent, the highest in Southeast Asia, until it reaches 20 percent, a timeline which has been criticized for being too slow.

CREATE, on the other hand, will immediately reduce the CIT rate to 25 percent this July and stay in that level until the end of 2022, according to Acting Socioeconomic Planning Secretary Karl Kendrick Chua.

The CIT will then drop one percent every year starting 2023 until it reaches 20 percent sooner than the timeline detailed under the Citira bill, according to Chua, one of the main proponents of the bill before leaving his post at the Department of Finance (DOF) to head the National Economic and Development Authority.

“The drop in CIT is seen to attract investors, increase the country’s competitiveness and help address particularly the cash flow issue of MSMEs (micro, small, and medium-sized enterprises),” Philexport said in a statement, citing Philexport president Sergio R. Ortiz-Luis Jr. in a statement.

“But in this crisis, this tax reform will particularly be relevant especially to small and medium-sized businesses bleeding from the impacts of the lockdowns and COVID-19 pandemic,” the statement added.

Philexport also said it supported the recommendation of Philexport Trustee for the Electronics sector Ferdinand A. Ferrer, who said the status quo should be maintained for the existing incentives for the next two to three years.

He also said indirect exporters—or those who supply raw materials to exporters— should be able to avail themselves of the same incentives such as value-added tax exemption as direct exporters. Training should also be incentivized especially in light of the shift to digital operations.

Philexport previously said that the CIT should be immediately reduced “with no condition,” a thinly veiled attack against the DOF’s tax package, which would only lower the CIT if it could rationalize the tax incentives offered to thousands of companies.

But if CREATE gets adopted, the divisive issue on shortening or cutting transition periods for existing companies might finally be put to rest. According to Chua’s presentation, existing investors should have “no change in present incentives for the next four to nine years.”

The Neda and the DOF did a survey last April 4 to 8 on how MSMEs and large companies were affected by the pandemic. Out of 44,097 respondents, 33,041 firms or nearly 75 percent of them have closed shop, with an estimated job loss of about 2.2 million.

Their top 3 needs, according to the survey results presented by Chua, were payment deferment to government, banks and utilities; tax discounts or tax credits, and low-interest loans from government and banks. INQ