Chua: Granting tax perks not the only way

CEBU, Philippines — Granting tax incentives is not the only way to directly help firms.

Finance undersecretary Karl Kendrick Chua said there are better ways to support companies amid criticisms against the government’s corporate tax reform, which seeks to rationalize fiscal incentives and seen by many as a deterrent to investors. 

Chua spoke about the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill at the multi-sectoral consultation on the Strategic Investment Priorities Plan (SIPP) in Cebu City yesterday.

Chua pointed out the medium-term real solution to support business growth is to address infrastructure gaps and fight corruption.

He also raised the need to solve the inefficiency in government and complex business regulations.

He added the government can also use more efficient and targeted subsidies such as skills training, power and lifeline subsidies.

Chua reiterated the need for the government to implement the second package its comprehensive tax reform considering the Philippines has the highest corporate income tax rate in Southeast Asia at 30%.

TRABAHO bill proposes to bring down corporate income taxe (CIT) by a third to 20% and cut income tax holidays and duty-free imports, causing uncertainties among investors.

Chua noted that while revenue from corporate taxes is increasing, "efficiency so very low."

"We have a very complex tax incentives plan. We grant the most generous fiscal incentives since they are in lieu of all taxes and given forever," he said, reiterating the need for incentives to be performance-based, targeted, time-bound and transparent.

The Philippines is in the midst of an ambitious tax reform to raise revenue to help fund its P8-trillion infrastructure plan. 

The Department of Finance had estimated the proposed lowering of the CIT by 2 percentage points every 2 years starting 2021 until 2029 will create over a million jobs by freeing up more capital for firms to invest and hire more workers.

“With lower tax rates, such a proposal is hardly inflationary while creating over a million jobs over the medium term as firms expand with more money at their disposal,” Chua said.

The reform bill seeks to rationalize incentives enjoyed by just a select group of private companies, many of them in the country's list of Top 1,000 corporations. 

In contrast, some 90,000 small and medium enterprises (SMEs), and some of the hundreds of thousands more micro enterprises have to pay the steep rate of 30 percent under the convoluted corporate tax system that has not been changed for over two decades now.  SMEs employ around 33 percent of the local labor force according to 2016 data from the Department of Trade and Industry (DTI).

The House of Representatives has already passed its version of this reform proposal called the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill.  The Senate is still discussing at the committee level its version of this measure authored by Senate President Vicente Sotto III and dubbed the Corporate Income Tax and Incentives Reform Act.

During his 3rd State of the Nation Address (SONA) last July 23, President Duterte had called on both legislative chambers to pass the remaining CTRP packages before the end of 2018.