ASEAN KEY DESTINATIONS
DOF is optimistic Congress will pass corporate tax reform in 2018
The Department of Finance (DOF) is optimistic the second package of tax reform measure, seeking to cut corporate income tax and rationalize incentives House of Representatives would be passed this year.
In an emailed statement on Tuesday, the department welcomed the filing of House Bill (HB) 7458 authored by Deputy Speaker Raneo Abu, Deputy Majority Leader Aurelio Gonzales, and Rep. Dakila Carlo Cua, who also chairs the House Committee on Ways and Means.
The bill provides for graduated cuts in corporate income tax and the modernization of fiscal incentives.
“With the timely filing of the measure at the House, we are optimistic that this proposal, along with the remaining tax reform packages, would be approved by the Congress within the year,” Finance Secretary Carlos Dominguez III said.
HB 7458 provides for a one-percentage-point reduction in the 30-percent corporate income tax each year starting in 2019. The proposed measure covers domestic corporations, resident foreign corporations, and non-resident foreign corporations.
It ensures, however, that the reduction would not reach lower than 20 percent, and would ensure that fiscal incentives are modernized to make them performance-based, targeted, time-bound, and transparent.
“HB 7458 also aims to either amend or repeal tax incentive provisions and processes contained in 114 special laws,” Finance Undersecretary Karl Kendrick Chua said.
“The long list of incentives, managed by investment promotion agencies, has caused confusion among investors availing themselves of these tax perks,” he said.
Similar provisions were included in the proposed second package of the Tax Reform for Acceleration and Inclusion (TRAIN) law submitted by the DOF to Congress in January.
In the statement, Chua defended the move to reduce the corporate income tax as the Philippines has one of the highest among the Association of Southeast Asian Nations (ASEAN), but with a low collection efficiency rate of 12.3 percent.
This compares with Thailand’s corporate income tax rate of 20 percent, with a 30.5-percent efficiency rate.
Vietnam imposes a corporate income tax of 25 percent rate and has a 29.3-percent tax efficiency rate, while Malaysia has in place a 24-percent corporate income tax with a 27.1-percent efficiency rate.
The Philippines is the only country that gives incentives that “last forever,” the DOF noted.
“We have been granting incentives for 50 years, and it is time we reevaluate whether the benefits are worth the cost,” Chua said.
President Rodrigo Duterte signed the first package—reducing the personal income tax and expanding the value-added tax base—into law on December 19, 2017.
The DOF has said it plans to submit up to five tax reform packages to overhaul the Philippine tax system.
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