House of Representatives' Committee on Ways and Means on Wednesday House Ways and Means Chair and Albay Rep. Joey Salceda gave his greenlight to the proposed changes to the second package of the comprehensive tax reform program on corporate income taxes and fiscal incentives.
Salceda, the panel chairman, said the amendments were “aligned with my own analysis of what needs to be done.”
“I broadly agree with the amendments. Actually, I proposed that we cut CIT faster to help Covid-afflicted businesses even before the changes were made. So, with that critical input considered, it fits what I believe should be the tax policy counterpart of the economic recovery plan. It’s P42 billion more money in hundreds of thousands of small businesses—wala pang delay sa implementation, kasi instant ang epekto sa bottomline. The cut is effective July 2020, if the Senate can manage to pass it before we go on break this June.” Salceda said.
The changes to the second package of tax reform, which will now be named CREATE—Corporate Recovery and Tax Incentives for Enterprises Act—include an immediate cut in Corporate Income Taxes by five percent starting July 2020, up to 2022, to be followed by a one percent cut every year until the rate reaches 20 percent, 3 percent lower than the ASEAN average of around 23 percent.
Other amendments include a more universal net operating loss carryover provision, which will extend the carry-over period of net losses in 2020 by two more years, prolonging the carry-over period from three to five years. This will allow firms to utilize net losses in 2020 as additional deductions to their taxable income from 2021 to 2025.
“The House originally came up with an enhanced NOLCO, but since the economy was doing okay then, we limited it as an incentive. Now all troubled enterprises, basta non-large, can avail of the provision.”
Meanwhile, Deputy Speaker and Camarines Sur Rep. Luis Raymund Villafuerte urged the Department of Trade and Industry and the Board of Investments to work double time in conducting roadshows abroad to better attract foreign investors set on leaving China to relocate to the Philippines.
At the same time, Villafuerte called on the Senate to approve the state economic team’s modified version of the Corporate Income Tax and Incentives Rationalization (CITIRA) bill that aims to immediately lower the corporate income tax (CIT) to 25 percent this year to help enable the DTI and BOI to entice investors to set up shop here instead of in other investment hubs in the region.
Aside from a bigger and faster CIT cut, the modified CITIRA or CREATE bill now being pushed by President Duterte's economic managers to help businesses amid the Covid-induced crisis provides for the retention of certain tax incentives that were up for rationalization under the original version of the CITIRA.
A co-author of the House-approved CITIRA bill, Villafuerte said the Senate’s approval of the modified CITIRA version, which the government’s economic team now calls the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, would let the Philippines catch up with its neighbors in the region, particularly Indonesia and Vietnam, where many foreign investors now based in China plan to relocate.
“DTI and BOI should work double time on convincing manufacturers who want to move away from China to transfer here so that we can speed up our efforts in helping the Philippine economy recover from the impact of the Covid-19 crisis and create more jobs. We are losing to Indonesia and Vietnam,” Villafuerte said.
"Attracting more foreign investors to do business in the country will help our country achieve a V-shaped or quick recovery from the coronavirus pandemic's economic fallout in lieu of a feared U-shaped one," Villafuerte added.
The Fiscal Incentives Review Board (FIRB), whose functions will be expanded under the bill, will also have the power to recommend the grant of longer tax incentives and non-fiscal incentives to deserving companies.
“That provision is best practice in countries like Vietnam. During my committee hearings, some stakeholders would complain that we are unable to attract the likes of Samsung to the Philippines because of our tax incentives regime. That answers the concern. We can now compete as much as we can if the opportunity is really worth our effort,” Salceda said.
“As long as the Senate’s final output is fiscally vetted, and without weird additions that threaten our financial position, we can go without a bicameral conference. We are confident that the House submitted a very reasonable and very sound first draft. As long as they don’t compromise the overall fiscal health of the country.”