Business groups, exporters want corporate income tax cut to 20% by 2025

By Jenina P. Ibañez, BusinessWorld, 2 Jun 2020

BUSINESS GROUPS and exporters are asking Congress to consider a longer transition period from the current tax incentives system and to accelerate the corporate income tax cut, in an effort to restore fiscal certainty to investors amid the pandemic.

Six foreign chambers and four other business groups on May 27 wrote a letter to Sen. Pilar Juliana S. Cayetano, the chairperson of the Committee on Ways and Means, to express their support for the reduction of corporate income tax (CIT) to 25% from 30% by July, and to propose the CIT be cut to 20% as soon as 2025.

The Senate is currently tackling the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act which accelerates CIT reduction from the earlier proposal of a gradual reduction to 20% over a decade under the previous version called Corporate Income Tax and Incentives Rationalization Act (CITIRA).

Under CREATE, CIT will remain at 25% up to 2022, before lowering at one percent each year until it reaches 20% by 2027.

The groups asked for an additional five years to retain existing tax incentives, in addition to the sunset provisions. CREATE allows for a four- to nine-year sunset period.

The previous incentives scheme allowed companies to pay 5% tax on gross income earned, in lieu of other national and local taxes.

The business groups also said the 5% tax on gross income earned can be maintained after the sunset provision, if companies continue to meet conditions such as exporting 90% of its output and employing at least 10,000 people.

GRAVE CONCERN

The groups expressed “grave concern” about the Finance department’s proposal to tailor-fit incentives, saying it will aggravate apprehension from foreign investors that do not know what incentives they will be able to negotiate from the government.

Trade Secretary Ramon M. Lopez last week expressed his support for tailored incentives under CREATE, saying it will help the Philippines match other countries’ incentives packages.

The business groups believe that tailor fitting incentives can help attract foreign investments if they are done in addition to a minimum set of incentives, such as retaining the existing tax incentives for at least five years.

For existing investors, they asked for an additional two years on income tax holiday, and to increase the maximum period for this to 20 years for new investments in less developed areas.

The groups said the Fiscal Incentives Review Board (FIRB), which would be put in charge of approving incentives and overseeing investment promotion agencies, should have these expanded functions only after five years.

They recommended this because they believe this could help the country respond quickly to foreign investors moving their supply chains from China.

“Definitely, this is not the time to experiment and transfer the power and functions of existing efficient IPAs (investment promotion agencies) like PEZA (Philippine Economic Zone Authority) to a body that has no proven track record, much less, experience. We need to be agile and efficient at this point when companies are scrambling to move out of China.”

They ask that the FIRB be given authority to approve incentives only for investments over $500 million, noting that investment promotion agencies should retain their authority to process and approve applications under the strategic investment priorities plan.

Groups that signed the letter include the American, Australian-New Zealand, Canadian, European, Japanese, and Korean foreign chambers. The Information Technology and Business Process Association of the Philippines (IBPAP), Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI), the Confederation of Wearable Exporters of the Philippines (CONWEP), and the Philippine Association of Multinational Companies Regional Headquarters, Inc. also signed on.

“In such dire and challenging circumstances, the Congress faces a dual responsibility to provide for relief and stimulus to the population and to restore fiscal certainty to current and future investors, especially to foreign investors, during a period when major realignments of their Asian regional manufacturing footprint are underway,” they said.

The business groups noted the Philippines has not benefited from the shift of supply chains from China.

“(The country) has yet to be seriously considered as an alternative to Vietnam and India. BOI (Board of Investments) reports only a few dozen enquiries and a handful of firms deciding to relocate to sites in the Philippines,” they added.

The BoI reported that the country attracted almost P1.6 billion in seven realized investment projects that have relocated from China, most of which were approved in late 2019.