House okays TRABAHO bill, (TRAIN 2) on final reading

Voting 187-14-3, the House of Representatives on Monday approved on third and final reading the proposed “Tax Reform for Attracting Better and High-Quality Opportunities” or TRABAHO which proposes to encourage investments by bringing down the corporate income tax rate from 30 percent to 20 percent and modernize investment tax incentives to enhance fairness, improve competitiveness, plug tax leakages and attain fiscal sustainability.

House Bill 8083 or the TRABAHO Bill, the second package of the Comprehensive Tax Reform Program, also aims to ensure that the grant of fiscal incentives helps bring in the greatest benefits, such as higher and more dispersed investments, more jobs, and better technology.

One of the bill’s oppositors, Camarines Sur Rep. Gabriel Bordado said he was saddened by the bill’s passage in light of the rising inflation and increasing prices of basic commodities. 

“This is the irony of all ironies,” he said.

Gabriela Rep. Arlene Brosas, member of the Makabayan Bloc, for her part, said the Lower House has turned its back again on the people by approving the pro-rich sequel of TRAIN 1—Trabaho bill.

“Instead of heeding the mounting calls of women and the people for the junking of the highly regressive TRAIN 1, this chamber heeded the proposal of the World Bank and the IMF to continue the anti-poor reforms in the country’s tax system with the approval of TRAIN 2,” Brosas, who voted against the bill’s passage, said.

She added that HB 8083” will disproportionately benefit big foreign and local corporations with the reduction of the corporation income taxes.”

The bill, which was authored by House Committee on Ways and Means Chairman Dakila Carlo Cua of Quirino,  reduces the current 30 percent corporate income tax rate per two years with the following timetable: 28 percent in 2021; 26 percent  in 2023; 24 percent in 2025; 22 percent in 2027; and 20 percent in 2029.

It also proposes to grant fiscal incentives to registered activities of exporters and industries listed in the Strategic Investments Priority Plan.

It provides subsidies through school and housing vouchers, as well as allocate funding for universal health care from incremental revenue.

Likewise, it appropriates a structural adjustment fund for displaced workers.

Cua said the TRABAHO bill is a product of six committee hearings of the Committee on Ways and Means, one technical working group (TWG), and numerous meetings with private sector participation.

Cua said the proposal shall not impose additional tax on consumer goods. “The objective of the TRABAHO bill is to create more jobs and opportunities for our country through encouragement of the private sector to invest and grow their businesses here,” said Cua.

Cua said that the lowering the corporate income tax will provide big relief to the country’s small and medium enterprises which represent about 95 percent of all corporate taxpayers in the country.

This means the money previously spent by investors or entrepreneurs on tax may now be used to further develop their businesses, increase wages, or lower prices of their products, Cua said.

Cua said the country’s 30 percent corporate income tax is too high compared to the 20 percent rate of Cambodia, Thailand and Vietnam and the 17 percent rate of Singapore.

Meanwhile, another author of the bill, Rep. Estrellita Suansing of Nueva Ecija,  said the country despite having the highest corporate tax in the ASEAN region at 30 percent has a low tax collection efficiency.

“This is because the tax base is seriously eroded by a system which provides for very generous tax incentives for both foreign and domestic investments in the Philippines, and consequently, the rate of job creation, as well as export performance have not increased significantly and are much lower than those of our ASEAN neighbors,” said Suansing.

Suansing said the cost of incentives to the country is staggering. For instance, in 2015, she said the Department of Finance (DOF) estimated that the investment tax incentive system cost the government around P301 billion in foregone income tax, value added tax and customs duties, not including local taxes and leakages.

“This amount translates to more than two percent of the country’s Gross Domestic Product. This staggering cost warrants the reform of the incentives system to one that is time-bound, performance-based, transparent and targeted to ensure that redundant incentives are removed, that the benefits fully outweigh the costs and that fiscal prudence is maintained at all times,” said Suansing.

Suansing said a cost-benefit analysis done by the DOF showed that on the average, there is no difference between the performance of firms receiving tax incentives and firms not receiving incentives in terms of employment, exports, investments and productivity.

“The bill seeks to correct this by making the incentives system “performance-based” – to one that provides incentives only, to deserving recipients who will directly contribute to national development, research and innovation, and to the generation of jobs and investments, especially in less developed areas of the country and those recovering from armed conflict or major disasters,” said Suansing.