No settlement yet on tax perks vs rational incentives in tax reform part 2

by Roy Stephen C. Canivel, Philippine Daily Inquirer, Aug 9, 2019

The second package of the Duterte administration’s tax reform program has a new name and, if conflicting proposals by two government agencies are settled, would have a new character, too.

A new version of the second package, formerly called Tax Reform for Attracting Better and High-quality Opportunities (Trabaho), has been approved in the House of Representatives but left out proposals made by the Board of Investments (BOI) to ease export zone jitters over talk that the new tax reform package could lead to removal of tax perks.

At a roundtable discussion with Inquirer editors and reporters late Wednesday (Aug 7), Department of Finance (DOF) officials said there are several bills on the package filed at the House of Representatives.

Although the bills have the same intent—to restart the process in Congress for the second tax reform package—they are no longer referring to the measure as Trabaho but Citira or Corporate Income Taz and Income Reform.

Asked by Inquirer if any of the BOI proposal, which seek to ease export zone worries, had been carried on the Citira bill, Finance Undersecretary Karl Chua said changes would have to be made at the Senate.

Chua said the Citira bill was likely to be passed by the House as the previous Congress left it to shorten the process.

“If ever there would be changes, it would be in the Senate” Chua said.

Asked if the DOF was amenable to the BOI proposals, he said without expounding that some of those might be possible.

“Some of them might be possible but this is an early stage of the discussion so we will know more as we progress,” Chua said.

The Trabaho bill wants to lower the corporate income tax (CIT) gradually over several years and shed the image of the Philippines as having one of the highest corporate taxes in Southeast Asia.

It also seeks to rationalize tax perks, however, casting a cloud of uncertainty over companies in economic zones.

The bill wants to remove the 5-percent gross income tax, which companies in ecozones pay in lieu of local and national taxes. The DOF wants the tax perk to have a period of effectivity.

The bill also gave a transition period of two to five years for companies that enjoy the current tax perks, with the oldest companies being forced to lose their perks the soonest.

On Thursday, BOI Managing Head and Trade Undersecretary Ceferino Rodolfo said in a statement that the government should consider making the transition period between five to 10 years.

In the meantime, he said the gross income tax will be raised to 8-percent, “an immediate additional revenue that can help balance the planned reduction” in other tax incentives.

Although the BOI had hinted at making compromises in the Trabaho bill, the statement was the first time that the investment promotion agency proactively raised its reservations.

“Affected exporter-locators have expressed concern that the change in the system may compel them to redirect their expansion plans elsewhere and even risk the possible transfer of their current operations to other countries,” Rodolfo said.

“There is a risk and we should minimize all the risks as we need all the jobs we can generate,” he added.

The statement also departed from the tone of its earlier statements.

Whereas the agency had previously been fully supportive of the tax reform push, now, it’s asking lawmakers to not rush amid a “risk” that companies would transfer operations or at least expand in other countries instead. /tsb