THE Department of Finance (DOF) has expressed confidence that the second package of its Comprehensive Tax Reform Program (CTRP) will still be passed within this year, despite senators earlier expressing concerns that the hoped-for timeline of the administration—passage of the bill by Christmas—may not be met.

“I am still confident of passage this year [of the Trabaho bill],” Finance Secretary Carlos G. Dominguez III said on Thursday, when sought for comment on a BusinessMirror banner story about a bipartisan consensus emerging in the Senate for a more careful deliberation of the Tax Reform for Attracting Better and High-Quality Opportunities, as it is called in the House of Representatives.

The House voted 187-14 on Monday to approve the Trabaho bill on third and final reading, with three members abstaining.

On Tuesday President Duterte, in a televised “tête-á-tête” with Presidential Legal Counsel Salvador Panelo, expressed hope the bill can be approved before Congress’s Christmas break.

However, separately interviewed on Thursday, senators said they will give it (passage by Christmas) their best shot but added that it may be difficult to pass the tax bill before the Christmas break.

Several senators both from the majority and the minority told the BusinessMirror that rushing the next-round reforms, which would cut corporate income taxes and “rationalize” fiscal incentives to business, is made difficult by three factors. The first is time constraint, since the lawmakers first have to work on the 2019 General Appropriations Act, amid debates on the shift to cash-based from obligation-based budgeting, as well as the political distractions from the October deadline for filing certificates of candidacy, with several senators as reelectionists.

Controversial provisions

The second hurdle to meeting a December deadline for Trabaho bill’s passage in the Senate is the need to vet controversial provisions, especially the projected loss of tax perks for locators in economic zones.

Export industry leaders and the Joint Foreign Chambers of Commerce in the Philippines had warned that two of the biggest export revenue drawers, the electronics and semiconductors group and the business-process outsourcing (BPO), could take a hit as many of them are based in economic zones.

Finally, a third factor is credibility, as raised by Sens. Francis Escudero and Joel Villanueva. The two said the fallout from TRAIN 1, which took effect on January 1, 2018, continues to be felt as the nation reels from a 6.4 percent higher-than-expected inflation in August, partly blamed on the excise taxes imposed by that law.

Escudero told the BusinessMirror earlier that the “mistaken and inaccurate assumptions of the same economic managers [who] proposed TRAIN 1 that resulted or at the very least triggered, to a large extent, the extraordinarily high inflation we are suffering from now” give these people “a not-so-high credibility with respect to whatever guarantees or projections they may give in connection with the proposed TRAIN 2.”

Passage of TRAIN 2 “might take its toll on reelectionists [re: their schedule and the fact that its a tax measure] which might, at the very least, affect their time and enthusiasm to support the proposed measure,” he added.

On Thursday Senate President Vicente C. Sotto III indicated to the BusinessMirror that passage of TRAIN 2 can be facilitated, “if it is the version that we will propose.” Sources have said there are major points where the Senate and House versions diverge, as the latter underwent at least 80 changes before Monday’s third-reading vote.

Package 2 of the CTRP, which aims to reduce corporate income tax rates from 30 percent to 25 percent while rationalizing the country’s fiscal incentives regime, was submitted by the DOF to Congress in January this year. The measure is under House Bill 7458 at the House of Representatives.

Sen. Juan Edgardo Angara, chairman of the Senate Ways and Means Committee tasked to conduct hearings on tax measures, would not predict the fate of the administration’s latest major tax bill submitted for Congress approval. “I honestly don’t know, it’s not something I control,” Angara said.

On the sidelines of Wednesday’s Arangkada Forum, Angara said his Ways and Means panel intends to ensure that provisions of TRAIN 2 will not be inflationary.

The chairman of the Economic Affairs panel, Sen. Sherwin Gatchalian, said for his part—also at the Arangkada Forum—that his committee will work to safeguard the incentives of the electronics and semiconductors sector, as well as BPO, considering their hefty contributions to the economy.

GIE incentive may be kept

Gatchalian said he is open to retaining the 5-percent gross income earned (GIE) tax incentive under TRAIN 2.

The Senate is considering keeping the 5-percent GIE tax incentive for certain industries depending on their cost-structure, but he said the government should not grant such tax perks for an indefinite period. “I do admit that we need to rationalize the concept of giving perpetual incentives.”

The 5-percent GIE incentive is given to locators registered with the Philippine Economic Zone Authority (Peza).

The DOF’s version of this tax-reform package wants to eliminate the 5-percent GIE tax incentives extended by Peza to its registered investors. The companies continue to enjoy the perk so long as they are operating inside a Peza zone.

“The Trabaho bill that the House [of Representatives] approved is a much, I think, different version from the DOF version, in the sense that they made a lot of adjustments so that jobs will not be lost,” said Gatchalian.

“And that’s also the view of the Senate, we will make sure that we will not lose the jobs and make sure that the country will not have a negative image because we’re neglecting our contracts. We want to make sure that this bill, as intended, will make the Philippines competitive with its peers by lowering down corporate income tax to 20 percent eventually,” he added.

Angara told reporters the Senate will tackle the proposed bill on September 25. With a PNA report