Staggered cuts in corporate income tax pushed

MANILA, Philippines — The National Tax Research Center (NTRC) is pushing for a staggered and conditional reduction in corporate income tax rates, warning of the measure’s possible impact on government revenue.

The NTRC said while lowering the corporate income tax rate – as proposed under the Package 2 of the Comprehensive Tax Reform Program (CTRP) – is important in improving the countries’ competitiveness, it will result in substantial revenue loss for the government.

The think tank warned the reduction in corporate income taxes “may jeopardize or put at risk economic growth or reverse whatever gains the Philippines has achieved so far in terms of macroeconomic stability.”

“Hence, for revenue considerations, in the event that lowering of CIT is considered, a staggered reduction of the CIT rate is deemed more judicious than outright reduction to cushion the impact of the proposal on government coffer,” the NTRC said in its latest journal.

“It is also worthwhile to consider putting a trigger or condition to the reduction so as not to unduly affect the government’s basic financial metrics and cash flow,” it said.

Package 2 of the CTRP pushes for the reduction of corporate income tax rates from the current 30 percent, and the rationalization of fiscal incentives enjoyed by certain business sectors.

Under the original DOF proposal, every one percentage point reduction in the corporate income tax rate should only be applied the following year, if the government generates P26 billion – equivalent to 0.15 percent of the gross domestic product – by rationalizing fiscal incentives.

However, House Bill 7458 provides the automatic reduction in the corporate income tax rate by one percent every year starting 2019, until the rates reach 20 percent.

Due to this change, the DOF earlier estimated that the government may incur losses amounting to P30 billion in the first year of its implementation and P67 billion on the second year.

Meanwhile, the NTRC said it also supports package 2’s provisions for the rationalization of fiscal incentives.

“Such effort could be an opportunity for the country to strengthen its investment environment, enhance healthy competition among businesses plug tax revenue leakage, which will contribute to higher tax collection to finance infrastructure, health, education, and other services, among others,” the think tank said.

However, the NTRC noted that there are other factors, aside from tax rates and incentives, that investors are considering before putting up a business in a country.

“Other than taxes, there are other factors, such as good governance, infrastructure, reliability and enforceability of laws and constracts, market size, availability of manpower, ease of doing business, among others, that investors consider before putting up a business or investment in a particular country,” it said.

Hence, the NTRC said the Philippines should also concentrate on establishing the necessary infrastructure and developments to make itself a more appealing investment destination.