The second package of the Duterte administration’s Comprehensive Tax Reform Package (CTRP) is now moving closer to getting passed, as the members of the House Committee on Ways and Means approved “in principle” the measure known as TRAIN 2. 

House Committee on Ways and Means Chairman Rep. Dakila Carlo Cua of Quirino, however, said his panel created a technical working group (TWG) to consolidate all related tax proposals filed in the chamber and create one version of Package 2, which aims to lower the corporate income tax (CIT) and modernize incentives.  

Currently, there are 12 bills filed in the lower chamber seeking to reduce CIT and rationalize fiscal incentives. However, Cua’s version of the second tax reform will be used as the main bill.

Cua said his panel is working double time to pass the package, as it was declared as a priority bill of both Speaker Gloria Macapagal-Arroyo and President Duterte.

“We are trying to finish as early as possible without compromising the quality of the legislation. Speaker [Gloria Macapagal] Arroyo said [we should] give this 100-percent attention and top priority, so that’s why we are not wasting any time on this,” Cua said. 

“[However], we have to understand that this is not something we want to do in one day, as we endeavor to pass this legislation.

There has to be proper transition, proper transitory provisions,” he added. According to the lawmaker, the country’s fiscal incentives must be modernized to ensure that these are more “responsive, targeted and transparent.” 

“Our objective here is to attract more investments, which, in turn, would generate more jobs,” Cua said.

Aambis-OWA Rep. Sharon Garin, a senior member of the ways and means committee and an author of one of the bills, said approving the bill in principle means the panel has already finished all the discussions on different versions.

Approving the measure in principle also means that the measure would be tackled as a package, rather than per individual tax proposal.  

“We will consolidate all the bills and opinions, then approval of the substitute bill and committee report at the mother committee,” Garin said. 

One of the authors of the bill, Albay Rep. Joey Salceda, meanwhile, said the bill seeks to lower the corporate tax rate, as well as widen the corporate tax base and plug its tax leakages, by rationalizing the administration of tax incentives.  

“The passage of [TRAIN 1] made our personal income taxation simple, fair, and efficient. To complete the administration’s fiscal reform package, the corporate income tax and incentives must likewise be made fair and efficient,” Salceda said. 

He said the country’s income tax system is characterized by a narrow base and a high rate of 30 percent, the highest in the Asean region. 

He said the country’s investment tax incentive system is characterized by “complexities and [an] overly liberal mind-set” with little regard to cost efficiency and effectiveness.

“While the importance of tax incentives is not denied—as it attracts investments, addresses market failures, and pivots the state toward reaching its full potential—it needs to be rationalized and disciplined to ensure that foregone revenues arising from its grant do not cost the government more than the benefits these investments bring,” Salceda said.  “With the tax incentives rationalized and the tax base expanded, the corporate income tax rate will now be reduced in order to alleviate the burden of majority of the business community—notably the micro-small, and medium-size enterprises, who pay the regular 30- percent income tax rate,” he added.

Hostage

The former chairman of the House Ways and Means Committee on Thursday said the proposal to lower corporate income tax rates has been held hostage by the second package of the Comprehensive Tax Reform Package (CTRP). 

Marikina Rep. Romero Quimbo said corporate income tax reduction cannot be conditioned on the overhaul of or removal of most tax incentives, as it amounts to a “hostage” situation.

“We cannot make the reduction of corporate income taxes contingent on removal of fiscal incentives. The DOF’s ‘revenue-neutral’ strategy, as shown by the effects of TRAIN [Tax Reform For Acceleration and Inclusion] 1, has not produced the desired effects,” said Quimbo at the sidelines of the continuation of the Ways and Means hearing on the second package of the tax reform. 

The second package of the CTRP, which was designed to be revenue-neutral, proposed to gradually lower the CIT rate from 30 to 25 percent, while rationalizing fiscal incentives for companies to make these performance-based, targeted, time bound and transparent.  

According to Quimbo, corporate income tax reduction is an urgent concern that affects the country’s competitiveness. 

“We currently have the highest corporate income tax in the Asean. An investor will not be convinced to come to our country if for every peso profit they make, 30 centavos will go to the government while in other neighboring countries, they only lose between 5 to 15 centavos. In some cases, they even get tax holidays,” he said.

He added that foreign direct investment is important to drive the most laggard sector in our economy—the manufacturing sector. 

“This is the sector that brings in the highest personal income growth as manufacturing sector creates jobs,” said Quimbo.

Separate discussion 

Meanwhile, he said it is better for Congress to discuss the proposal reducing the corporate income tax and the proposal rationalizing the fiscal incentives. 

“I think we need to discuss them separately. However, certainly nothing prevents us from putting them both in one law,” he said. 

The Department of Finance (DOF) is also pushing for the passage of the measure as the country needs to harmonize the 315 incentive laws into one incentives law. 

It said some 315 existing special laws grant other forms of incentives beyond what the investment promotion agencies (IPAs) give. 

Currently,  the Philippines has 14 IPAs  authorized to grant incentives to a select group of businesses. 

 With the incentives laws, the DOF said the government lost P178.56 billion in potential revenues in 2016 as a result of tax perks to only 3,102 firms registered with various IPAs. In the same hearing, Jenina Joy Chavez from the Industrial Policy team noted the importance of incentives and their effect on fiscal space.

“[W]e believe that incentives are come-ons designed to encourage investments where they would not normally go or where the expected social benefits are high,” Chavez said, adding that with freed fiscal space, “new priorities may be identified in the future.”

She added that some incentives may be flexible and last for five years but not more than 10, to “help an activity or an enterprise to get past the stage of infancy or precarity, to develop efficiencies and to stand on their own.

“The reforms in fiscal incentive will have broader benefits for more industry players so it can balance out,” Chavez said. Finance Undersecretary Karl Kendrick Chua reiterated that Package 2 is revenue-neutral because as “we lower the corporate income tax gradually, we are going to phase out the unneccessary incentives.”

With Joahna Lei Casilao