The Finance Department is pushing for the overhaul of the corporate tax system to correct inequities and improve compliance, a top official said over the weekend.
Finance Undersecretary Karl Kendrick Chua said the reforms would include the lowering of the corporate tax rates and the expansion of the functions of the Fiscal Incentives Review Board as an “overall administrator” to oversee all investment promotion agencies.
Chua said these reforms would generate more investments, improve collection efficiency and correct inequities that benefited only large, highly profitable businesses.
Chua said the Finance Department would also ask Congress to repeal 150 special laws that complicated the grant of fiscal incentives to businesses, and replace it iwith an omnibus law that would provide a single menu of incentives applicable to all IPAs.
He said these reforms were included in Package 2 of the Duterte administration’s Comprehensive Tax Reform Program.
The Finance Department this month submitted Package 2 to the House of Representatives, covering corporate taxation and the modernization of fiscal incentives. Package 1, or the Tax Reform for Acceleration and Inclusion Act which cut personal income tax rates while raising additional revenues for infrastructure and social services, is now being implemented.
Chua said reducing the CIT rate could be done in two ways, first with reduction by 1 percent per year over five years or reduction by 1 percent the following year if the revenue trigger of P26 billion”•which is equivalent to additional revenues of 0.15 percent of GDP”•was reached the previous year by broadening the tax base and rationalizing fiscal incentives.
“We will propose the second method to ensure that this tax reform, which is Package Two of the CTRP, will be revenue neutral. Every one percent reduction requires P26 billion in counterpart revenues to keep revenue neutrality,” Chua said.
Finance Secretary Carlos Dominguez III said the corporate income tax could only be lowered if there was a corresponding correction in the grant of fiscal incentives to businesses.
”Our plan is to lower the tax rate for corporations from 30 percent to 25 percent. But our proposal to Congress is to allow us to do that only if there’s a reduction in the amount that we provide for incentives,” he said at a recent Management Association of the Philippines event.
Chua said that along with paring the CIT rate, the agency would ask Congress to modernize the country’s fiscal incentives system to ensure that these are “performance-based, time-bound, targeted and transparent.”
“All tax incentives should not be perpetual because the government cannot go on subsidizing business forever. If a firm continues to be a losing firm, it has no business being in business,” Chua said.
Chua said the Finance Department proposed simplifying tax rules for corporations, by cutting the number of tax forms and procedures, reviewing the National Internal Revenue Code to improve general anti-avoidance regulations and transfer pricing and costs and reducing the optional standard deduction from 40 percent to 20 percent of gross income.
He said for incentives, there should be clear measures of actual investment, job creation, countryside development, exports and research and development to ensure that these were performance-based.
He said incentives should also be targeted to minimize leakages and distortions in the tax system and, more importantly, time-bound so that tax perks were not granted forever to businesses.
