The Finance Department said Thursday eligible investors will continue to enjoy tax incentives from the government and they have no reason to worry over a pending bill in Congress that seeks to reform the country’s corporate income tax system.
Finance Undersecretary Karl Kendrick Chua said Thursday the government’s goal was to modernize the current set of incentives being given to a select group of businesses that only pay a “forever” 5-percent tax on gross income earned in lieu of all local and national taxes, even if these favored companies failed to generate more jobs or contribute to the economy.
Chua said the current system was unfair to about 90,000 active small and medium enterprises that pay a CIT of 30 percent, which is the highest in the region.
“The government is pro-investment, pro-jobs and pro-incentives,” Chua said.
“We will continue to give incentives to those that perform. But we will start to include sunset provisions on the incentives of those that are not performing. So what is there to fear if you are
performing, if you are contributing exports, contributing to countryside development, jobs and productivity?” he said.
Chua said to make the CIT system fair and accountable, the Duterte administration asked Congress to reduce the CIT rate and rationalize the fiscal incentives system which had become “inequitable and convoluted” as a result of 136 laws governing the grant of such investment perks, including those for 14 investment promotion agencies.
Corporate tax reform comprises Package 2 of the Duterte administration’s comprehensive tax reform program.
The House of Representatives approved on third and final reading on Sept. 10 its version of the corporate tax reform bill known as the Tax Reform for Attracting Better and Higher Quality Opportunities or Trabaho Act.
The Senate has yet to approve its counterpart measure, which was authored by Senate President Vicente Sotto III and dubbed the Corporate Income Tax and Incentives Reform Act.
“What we are basically doing is to make our incentives more accountable, fairer, and at the same time, give the same opportunity to some 90,000 SMEs that are also working hard, also delivering jobs and exports and productivity but paying the regular 30 percent. That is really what this whole reform is all about,” Chua said.
Chua assured investors that the set of incentives being pushed in Congress by the Duterte administration through the Department of Finance was even better than the current one.
“For instance, you can avail of the 50-percent more deduction on labor; 100-percent more deduction on training, on research and development; 50 percent more deduction if you buy local. And then the
depreciation allowance is even better, and there is a longer net operating loss carryover,” Chua said, referring to the reforms as far “superior” than the current set of incentives that a select few enjoy.
Chua said the new set of incentives being proposed by the DOF, “when put together, can make our incentives system more competitive and performance-based.”
“And for some who have seen the light, they find it better,” Chua said.
