DTI joins calls to slash ‘very high’ tax rates

By Melissa Luz T. Lopez, Reporter | Posted on September 09, 2015 08:49:00 PM

THE DEPARTMENT of Trade and Industry (DTI) has joined calls to trim taxes in the Philippines, with its chief saying the steep rates pose as a “threat” in attracting investors.

“The tax rates in the Philippines are high, very high. I remember a couple of times, the CEO of one of the biggest companies in the world came here and talked to the President and he specifically mentioned that we have to do something about our tax rates if only to become more competitive,” Trade Secretary Gregory L. Domingo said during the DTI’s budget briefing at the House of Representatives late Tuesday.

He made the statement when asked by Abakada party-list Rep. Jonathan A. Dela Cruz about concerns raised by the potential investors.

“They said when they make a decision on where to locate their plants, taxation is a very big factor in their decision making. He said we are missing out on opportunities for production because of our high tax rates. We have to address that,” Mr. Domingo added.

Income taxes are said to be the highest in Southeast Asia, with corporate taxes in the Philippines at 30%, while the top tax rate for persons earning at least P500,000 yearly is at 32%.

A proposal to index tax brackets to inflation and to lower corporate taxes to 25% are being discussed at the House, but its passage could not be assured so far as the measure has not yet clinched the committee’s nod, the first of a series of the required approvals.

The Finance department has repeatedly opposed any move to reduce tax duties, saying it would create a huge revenue hole that will leave social services unfunded.

Mr. Domingo also made a pitch to reform tax collection for small businesses, saying annual payments for sari-sari or community retail stores and beauty parlors would be more feasible and could encourage more to pay taxes.

“More than actually reducing the tax rates, I think we should make an attempt for small enterprises to really simplify tax compliance because if you are a small enterprise, it’s very difficult to make them file monthly and make them account their income and expenses… We need to come up with a simpler systems on how to do this,” Mr. Domingo added.

Other business concerns, he said, are high power rates and the staggering amount of regulations and licenses which a company must secure before operating here.

Mr. Domingo said he discussed his proposals with Marikina Rep. Romero Federico S. Quimbo, chairman of the House committee on ways and means.

Prior to this, Mr. Quimbo’s panel said they are arranging a meeting with the Finance department to discuss income tax reform.

MANUFACTURING GROWTH

Mr. Domingo also told lawmakers that the country’s manufacturing sector is seen to further expand and could overtake the services sector.“Manufacturing is back. In 2013 to 2014, our manufacturing growth averaged 8.8% — that’s extremely high growth,” Mr. Domingo said, while also noting that the country has since diversified the products that are being built here to include items apart from electronics.

“Based on the intelligence we gathered and specific queries we’ve gotten, we should expect to continue to have a very strong manufacturing growth for the many years to come,” the Trade chief added, while citing that foreign firms are starting to put up “very big plants” here but refused to name the companies.

Aside from electronics, Philippine-based plants are now able to produce and export medical supplies, bicycle parts, larger ships, and airplane parts, which Mr. Domingo said is a testament to the high quality output that the local industries can produce.

The Trade department is seeking a budget allocation of around P6 billion for 2016, an increase from the current P3.73 billion.

But Mr. Domingo said the increase for actual programs are “minimal,” as bulk of the increase would go to payments to the National Power Corp. to pay discounted power rates earlier given to big locators of the Philippine Economic Zone Authority amounting P2.1 billion.

A P20 million allocation has also been included to fund the government’s Comprehensive Automotive Resurgence System (CARS) program for 2016, the first in the six-year implementation of the industry plan for carmakers.

The CARS program would offer incentives to new investments on car assembly plants here. It is seen to bring in P27 billion in new parts manufacturing investments and generate 200,000 direct and indirect jobs.

BPO SECTOR TO EXCEED REMITTANCES

The rapid growth of the information technology and business process outsourcing (IT-BPO) sector is also seen on track to outpace remittances of overseas workers.“The IT-BPO… is now contributing P18 billion and is growing at a much faster rate than remittances,” Mr. Domingo said. “Maybe in about another five years, that IT-BPO itself would surpass already the remittances.”

Money sent home by Filipinos abroad contributed to 8.5% of the country’s gross domestic product in 2014, the central bank has said.