DOF pushes staggered, conditional corporate income tax cut

The Department of Finance (DOF) on Tuesday reiterated its push for a staggered and conditional reduction in corporate income tax rates under the proposed second tax reform package as the government cannot stand to lose more revenues due to the massive physical infrastructure and social services programs that the Duterte administration would want to fund.

During the hearing conducted by the House Committee on Ways and Means hearing, Finance Secretary Carlos G. Dominguez III said that the DOF proposal was “pro-business, pro-investments, and pro-incentives.”

The hearing tackled pending measures aimed at slashing the 30-percent tax slapped on companies’ incomes – the highest in Asean at present – while rationalizing the fiscal perks being enjoyed by investors,

“The second package of our tax reform program aspires to build a more competitive and transparent business environment,” Dominguez told the committee. “It seeks to rationalize our incentive systems to reduce overlaps, hidden subsidies that benefit a few, and loopholes that unfairly distribute business advantages. We seek reforms that will deliver a more even playing field, simplify collection procedures, bring greater transparency and reward genuine efficiency.”

“The second package continues to acknowledge the important role fiscal incentives play in attracting efficiency-seeking investments that otherwise would not have gone into our country in favor of more cost-effective destinations,” he added. “Package two, however, requires that every peso given up as an incentive must benefit the society in the form of better jobs, faster innovation and countryside development. Some of the incentives granted, however, were entirely unnecessary given the inherent attractiveness of our market size, our natural and human advantages and our freshly gained competitiveness. Whatever incentives are granted should be performance-based, tightly targeted, time-bound and transparent.”

“It is important to note that incentives are not the only factor that drive investments,” he went on. “President Duterte’s policy to attract foreign investments, which he spelled out in a recent speech before Singaporean investors is to provide a safe place for businesses by maintaining peace and order, wipe out corruption, and eliminate red-tape in the bureaucracy.”

Also during the hearing, Finance Undersecretary Karl Kendrick T. Chua reiterated the DOF position of a conditional and phased reduction in the corporate income tax rate.

Originally, the DOF wanted to lower the rate starting Jan. 1, 2020 by one percentage point for every reduction in investment tax incentives equivalent to 0.15 percent of gross domestic product in 2018 – or an estimated P26 billion.

The DOF was eyeing to bring down the corporate income tax rate to as low as 25 percent by 2022.

Chua said that the DOF position was adopted by House Bill No. 7214 authored by Reps. Horacio Suansing Jr. and Estrellita Suansing.

In the case of HB No. 7458 – filed by Rep. Dakila Carlo Cua, who chairs the House ways and means committee; Deputy Speaker Raneo Abu; and Deputy Majority Leader Aurelio Gonzales Jr. – there will be an automatic reduction in the corporate income tax rate by one percentage point starting 2019 until it reaches 20 percent.

“For every one percentage point reduction – let’s say from 30 percent to 29 percent ’ of corporate income tax, we’ll lose P26 billion a year, and every year it grows because of inflation and economic growth,” Chua told the committee.

The bill filed by the Suansings will result in foregone revenues of P130 billion, while the bill filed Cua, Abu and Gonzales has a higher revenue loss of P260 billion.

“This is something, I think, we cannot afford at this time because of the massive infrastructure program, universal health care, free tuition and free irrigation,” Chua said. “That is why we proposed originally to make it conditional so that every time we have savings from the incentives rationalization and from the redundant ones, they will go to the SMEs [small and medium enterprises] who pay 30 percent.”

The government stands to gain zero net revenue from the second tax reform package, as it was aimed to be a revenue-neutral measure, according to Chua. /atm