Speaker Gloria Macapagal Arroyo recommended at least five measures to address inflation during a recent meeting with the country’s top economic managers, Budget Secretary Benjamin Diokno said Thursday, even as the House committee on ways and means approved a bill lowering corporate income taxes and amending other provisions of the Tax Code.
“She seems to be very concerned with inflation,” Diokno told the ANC morning newscast. He said Arroyo elaborated on the proposals during a closed-door meeting that was also attended by Economic Planning Secretary Ernesto Pernia.
In the Senate, Senate President Vicente Sotto III filed his own version of the Tax Reform for Acceleration and Inclusion Law 2, focusing on lowering corporate income taxes for small and medium enterprises from 30 percent to 25 percent, without removing—but “rationalizing”—any existing tax incentives.
Saying this was a revenue-neutral tax measure, Sotto said it would not have any inflationary effects but provide support to more than 90,000 SMSEs.
In the House, the committee on ways and means chaired by Quirino Rep. Dakila Cua, approved the tax measure days after Arroyo said the the second package of the administration’s tax reform law is a priority bill—being part of President Rodrigo Duterte’s legislative agenda and tagged as urgent in his State of the Nation Address.
The committee is now preparing to consolidate various version of the measure by creating a technical working group tasked to come with the final draft of the bill.
Albay Rep. Joey Salceda moved for the approval of the bill.
Deputy Speaker and Batangas Rep. Raneo Abu, one of the principal authors of the bill, said the bill “is a corrective measure to address redundant incentives given to firms which fixed income earners are in a way subsidizing.”
“We believe that we support infant industries but it should be time bound,” Abu said.
“We are lowering the corporate income tax, which will cushion the effect of removing the incentives of those companies which for so long enjoy the incentives but [have] no inputs to exports and labor. Our corporate income tax rate is the highest in Asean (Association of South East
Asian) countries. We are pro-investors,” Abu said.
Under the proposed second package of the TRAIN Law, the government aims to lower the corporate income tax from 30 percent to 25 percent and to modernize the fiscal incentives to attract new and growing industries.
While the passage of TRAIN 2 is expected to go smoothly in the House, it may be in for rough sailing in the Senate, where some senators have been critical of TRAIN.
At a congressional hearing, the Department of Finance said Package 2 of the administration’s tax reform law will merely focus on the investment incentives covered by the 123 special laws granting incentives.
Finance Undersecretary Karl Kendrick Chua said there are other agencies that are mandated to administer incentives apart from the 14 investment promotion agencies. Moreover, there are 192 non-investment incentive laws aside from the 123 investment incentive laws.
He said the DoF proposes to put everything together in one Strategic Investment Priority Plan. Thus, the grant of tax breaks will no longer be fragmented but strategic. Fragmented incentives refer to regional, sectoral and industry-specific incentives under the present set-up.
“Our proposal is to go beyond the sectors or industries’ interest; to review at the national level what the priorities are,” said Chua.
Thus, the DoF recommends the following: 1) amend the Tax Incentives Management and Transparency Law to cover all incentive-giving agencies; 2) repeal all special laws; and 3) harmonize incentive system thru the SIPP.
Chua explained that deserving companies may be determined through their length of availment, high profitability, and primary motivation, whether market-seeking, resource-seeking or efficiency-seeking.
Based on data, 57 percent of companies currently enjoying incentives are no longer in their infancy stage or have been in existence for 15 years or more. Meanwhile, the remaining 43 percent are those that need protection. These are corporations that can easily decide to invest in other countries.
Opposition Senator Paolo Benigno Aquino IV said the government should fully implement the mitigating measures under the TRAIN Law before discussing the passage of TRAIN 2.
He said the government must first ensure that Filipinos can get the help promised to them under TRAIN, since millions of families have yet to receive the financial assistance from the govenfment following the implementation of first phase of the tax reform program.
“Even the jeepney drivers are complaining about the Pantawid Pasada Program,” said Aquino , one of four senators who voted against the ratification of the TRAIN Law.
The government has yet to complete the roll out of the unconditional cash transfer program and Pantawid Pasada Program, which should help jeepney operators and drivers cope with the increase in oil prices.
“If there were many promises which were not fulfilled, why are we going to believe the promises now?” he said.
“Let us be true. Let us suspend the burdening taxes under TRAIN,” said Aquino who filed a bill to roll-back and suspend the excise tax on fuel under the TRAIN Law when average inflation surpasses the annual inflation target over a three-month period.
Sotto noted that in the last 20 to 30 years, 654 companeis have been enjoying incentives from the government.
Because of this, he said, it is high time to have a tax incentives system that is performance-based, targeted, transparent and time-bound to ensure that the people gain from every peso that the government gives to the firms registered in the investment promotion agencies.
He also said TRAIN 2 will simplify the tax system to avoid tax evasion, and provide higher penalties to tax offenders.
Senate Majority Leader Miguel Zubiri earlier warned that Filipinos may lose their jobs if more than 2,000 businesses pull out of the country as a result of losing their fiscal incentives under the proposed second tax reform package.
He issued the warning after Sotto said he would file the measure proposing a new round of tax reforms following the Tax Reform for Acceleration and Inclusion Act.
In his explanatory note, Sotto disputed claims that TRAIN 1 had burdened the people with a spike in the prices of goods and services.
Instead, Sotto insisted that six months after its implementation in January 2018, the government has gained the rightful budget to finance, among others, its social mitigation program for the poor, the free education program and to start the initial phase of Build, Build, Build infrastructure program of the Duterte administration.
“While the effectiveness of TRAIN 1 is creditable, the rising price of basic commodities, power and food, which are utilized by the majority of the population belonging to the lower strata of the society, have been wrongly blamed to the effect of TRAIN 1,” Sotto said.
He said it is unfortunate that the targeted 3.7-percent inflation rate set by the Department of Finance ballooned to 5.2 percent.
“The offshoot, however, of the targeted effects of TRAIN 1 on our inflation have been caused by other external factors not related to it,” Sotto said, including the spike in world oil prices, which jumped from $53.7 per barrel at the start of this year to a high of $75.16 per barrel in June 2018.
