Corporate income tax cut to 25% by July pushed

The Philippines’ corporate income tax rate—Asean’s (Association of Southeast Asian Nations) highest at 30 percent—can slide to 25 percent during a one-time, big-time reduction planned in July if Congress will listen to the economic team’s pitch contained 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 Chua told the online “Sulong Pilipinas” youth workshop on Thursday that this plan, which was eyed for implementation between June and December this year, sought budget and procurement flexibility, reprioritization of the P4.1-trillion 2020 budget, prioritization of “Build, Build, Build” infrastructure program resumption, creation of jobs and increases in incomes, infusion of equity and liquidity into affected firms as well as guarantees through the financial sector, and targeted tax incentives for investors.

Finance Secretary Carlos Dominguez III said the PH-Progreso package would cost P130 billion to P160 billion, but its multiplier effect would bring some P800 billion to P1 trillion in value-added to the economy.

Through 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 expected to contract deeper to bring the Philippines into recession.

On Tuesday, 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 consumers’ jobs and incomes, a follow-through to the Bayanihan to Heal as One Act containing the government’s initial COVID-19 response; the Corporate Recovery and Tax Incentives for Enterprises Act (Create)—an upgraded version of the pending Corporate Income Tax and Incentives Reform Act (Citira), and the proposed 2021 national budget of P4.18 trillion approved by the Cabinet-level Development Budget Coordination Committee (DBCC) on Tuesday.

Under Create, Chua said an across-the-board, immediate lowering of the corporate income tax rate to 25 percent would happen by the middle of the year—unlike Citira, under which the reduction of the tax rate will be gradual over a 10-year period before reaching 20 percent.

Also, Chua said Create would extend net operating loss carryover to five years from three years under the Tax Code, while “losses in 2020 can be credited to future tax payment.”

Based on Chua’s presentation, new investors would enjoy “targeted, time-bound, and tailor-fitted tax incentives to proactively attract the right types of investment (demand-driven led by the Board of Investments, not supply-driven, to attach investors leaving China, etc.).”

For existing investors, there will be no change in present incentives for the next four to nine years, he said.

As for investors in the countryside, Chua said “targeted and time-bound tax incentives [will] support the Balik Probinsya, Bagong Pag-asa program.”

“In all these, the Fiscal Incentives Review Board (FIRB) [will] manage and decide the grant of tax incentives to improve governance,” Chua added.

“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 earlier said.

As for Bayanihan 2, Dominguez said it would involve the infusion of an additional capital of P50 billion into state-run lenders Land Bank of the Philippines, which will get 70 percent of the amount, and Development Bank of the Philippines (DBP), 30 percent, to provide liquidity to micro, small and medium-sized enterprises. This is on top of the P20 billion to be infused into the unified Philippine Guarantee Corp.

Dominguez said they planned to put up a joint venture between Landbank and DBP, which “will be empowered to buy bonds, and preferred shares or common shares in qualified companies that need support from the solvency support.”