The government is pushing for a measure that would immediately reduce corporate income tax (CIT) from 30 percent to 25 percent, but this would be at the expense of at least P259.4 billion in expected revenue loss until 2022.
The repackaged Corporate Income Tax and Incentives Rationalization Act (Citira) will now be called Corporate Recovery and Tax Incentives for Enterprises Act or CREATE, based on the presentation of Socioeconomic Planning Secretary Karl Kendrick T. Chua to the House of Representatives.
In the presentation, obtained by the BusinessMirror, Chua said the proposed CREATE is part of the recovery stage under the Philippine Program for Recovery with Equity (PH-Progreso), or the proposed economic recovery program of the Development Budget Coordination Committee (DBCC).
The government plans to implement the recovery stage from June to December 2020.
According to Chua, the repackaged tax incentives will include an across-the-board lower tax rate for all firms and enhanced net operating loss carry-over (Nolco).
Chua said the CIT rate reduction for all, or the immediate lowering to 25 percent from the current 30 percent, will have a revenue impact of a total of P226.8 billion or P41.96 billion in July 2020 onwards, P89.46 bilion in 2021 and P95.36 billion in 2022.
Longer transition
Also included in the CREATE, Chua said, is the longer transition period or additional two years for existing firms receiving incentives. This will cost the government P32.65 billion or P3.78 billion in July 2020 onwards, P12.55 billion in 2021 and P16.32 billion in 2022.
He said the targeted and timebound tax incentives to support Balik Probinsya, Bagong Pag-asa Program are also included.
Under the CREATE proposal, the Fiscal Incentives Review Board (FIRB) is tasked to improve the governance of tax incentives by tailoring programs to the individual companies’ needs, Chua said.
The original Citira tasked the FIRB, which will be institutionalized, to review and approve all projects seeking incentives from the government. Under the proposal, the Finance Secretary chairs FIRB.
House Economic Stimulus Cluster Cochairman and House Committee on Ways and Means Chariman Joey Sarte Salceda, in a statement, said the original Citira was approved by the Duterte Cabinet as an administration measure in January 2018 while the new House approved it on Septemper 2019.
“By my estimates, we probably easily lost $3 billion in investments in the two years of dawdling after the Executive approved its unified version in January 2018. That is an amount that could have provided us a safety cushion during this pandemic,” he added.
Meanwhile, Salceda backed the faster lowering of CIT.
“The emerging proposal is an immediate 30 percent to 25 percent one time in 2020 versus the 1 percent yearly reduction, and then let the next administration have flexibility over the other 5 percent. This sends a strong signal that the country is open for business, subject of course to our need to finance infrastructure, health, and education,” he said.
He also backed the proposal increasing the sunset provision by 2 years across the board.
“I welcome the effort to make Citira more responsive to Covid-19. The House- approved version anticipated the structural need to reduce population density in NCR through Balik Probinsya by providing twice the incentives for investments in countryside development,” he added.
According to Salceda, this proposal will be tackled during the congressional bicameral conference committee meeting as the House already approved on third and final reading its version of the bill.
“As a matter of strategy, we await the Senate version and introduce these Covid provisions in bicam,” he said.
On the Nolco provision, Salceda said the House of Representatives has already included the Department of Finance proposal extending the enhanced Nolco for small business for five years from the current 3 years, with the government absorbing as much as P139.6 billion in the form of forgone tax payments to help these enterprises recoup their losses.
Raising revenue
Meanwhile, Chua said the government is looking for other options to raise its revenues starting this year.
The government is studying the digital economy VAT and the new health sin tax.
Under the digital economy VAT proposal, Chua said all non-residents that registered e-commerce platforms are responsible for withholding VAT from clients. He said this proposal will provide additional revenue for the government of P15 billion in 2021, P16.6 billion in 2022 and P18.4 billion in 2023.
On the health sin tax, Chua said the government is eyeing to implement a 6 percent indexation on sweetened beverage tax while imposing 8 percent ad valorem tax to junk food with high trans fat and high salt. This will give government additional revenue of P3.7 billion in 2021, P7.3 billion in 2022 and P11.7 billion in 2023.
Also, Chua backed Salceda’s proposals increasing the Motor Vehicle Road Users’ Tax (MVRUT), a proposal under House Bill 4695 that could provide government P40 billion in additional revenue in three years.
Chua also supported passage of Salceda’s House Bill 5267 requiring Philippine Offshore Gaming Operations (POGOs) to pay a 5 percent tax on gross receipts from their operations covered by the law granting their franchise. Foreign employees working for POGOs would also be presumed to earn P600,000 and pay a 25 percent tax on their salaries, wages, annuities, compensation, remuneration, honoraria, and allowances.
Chua said the Palace already implemented through Executive Order 113 the temporary 10-percent increase on fuel tariff, which will also provide additional P3.7 billion revenue to the government.
Image Credits: Neda