Reforms in corporate taxation to boost economy

MANILA, Philippines — A reduction in the corporate income tax, complemented by reforms in the tax incentives system, will drive economic growth, create more jobs, and lower poverty incidence in the country, according to a study commissioned by the Department of Labor and Employment (DOLE).

Based on the study, the proposed reforms under the Corporate Income Tax and Incentives Rationalization Act (CITIRA), now revamped as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), will also level the playing field, boost the inflow of foreign direct investments, and result in a reduction in the prices of consumer goods.

A copy of the study, titled “The Potential Economic Effects of Reducing Philippine Corporate Income Tax and Reforming Sectoral Incentives,” was sent by Labor Secretary Silvestre Bello to Finance Secretary Carlos Dominguez.

“With these positive findings, the DOLE is confident that CITIRA (now renamed CREATE) will facilitate the creation of more and better employment opportunities for our workers through a regionally competitive corporate tax rate and a level playing field for firms and industries across regions, especially for (micro, small and medium enterprises) and in lagging and underdeveloped regions,” Bello said in a letter to Dominguez.

According to DOLE, the research was conducted before the outbreak of the coronavirus disease 2019 or COVID-19 in the country.

The study was based on the original proposal under the CITIRA, which seeks to gradually lower the 30-percent corporate income tax rate by one percentage point each year until it reaches 20 percent by 2029.

This is slower than the CREATE bill, which proposes an immediate five-percentage point cut in corporate income tax this year, followed by one-percentage point reduction per year until it reaches 20 percent by 2027.

The study focuses on six key simulations, with different assumptions on how the reduction of the tax rate would be compensated, whether through higher borrowings or lower spending by the government.

Based on one simulation –which considered the original CITIRA as proposed by the government, with the deficit kept at 3.2 percent and the Build Build Build program in full swing – the services and agriculture sectors stand to benefit the most in terms of employment, with the increase in jobs significantly larger in the skilled than the unskilled sector.