The Department of Finance said Tuesday it formally submitted to the House of Representatives this week the second package of the Comprehensive Tax Reform Program that aims to reduce the corporate income tax rates and modernize the fiscal incentives granted to investors.
Finance Secretary Carlos Dominguez III earlier committed to submit the second package through the Office of the Speaker upon the resumption on Jan. 15 of the second regular session of Congress.
The Constitution provides that all revenue measures should emanate from the House of Representatives.
Package 1 of the CTRP, also known as the Tax Reform for Acceleration and Inclusion Act, was signed into law by President Duterte on Dec. 19. It reduced the personal income tax rates”•the first time that the government did so by law”•while raising additional revenues for infrastructure and social services through the repeal of several non-essential exemptions to the value-added tax; adjustments in the excise tax rates for fuel, coal and automobiles; and a tax on sugar-sweetened beverages.
The CTRP’s Package 2, which the DoF designed to be revenue-neutral, proposes to gradually reduce the corporate income tax rate from 30 percent to 25 percent, while modernizing incentives for companies to make these “performance-based, targeted, time-bound, and transparent.”
Finance Undersecretary Karl Kendrick Chua said that under the second tax reform package, the government would ensure that incentives granted to businesses would generate jobs, stimulate the economy in the countryside and promote research and development; contain sunset provisions so that tax perks would not last forever; and are reported so the government can determine the magnitude of their costs and benefits to the economy.
He said incentives enjoyed mostly by big businesses such as income tax holidays and other perks with no time limits needed to be corrected as they were costing the government over P300 billion annually in foregone revenues.
Chua, citing 2015 data, said income tax holidays and special rates accounted for P86.25 billion of the revenue losses, while custom duty exemptions accounted for P18.4 billion.
Exemptions from paying value added tax on imports led to P159.82 billion in foregone revenues; and local VAT, P36.96 billion, although a part of this tax would eventually be refunded because these were imposed on exporters.
He said these incentives totaling P301.22 billion did not include exemptions from the payment of local business taxes and the estimates on tax leakages.
Chua said in terms of income tax incentives, the government, in effect, gave away P61.33 billion to companies in 2011, which went up to P88.17 billion in 2014.
Customs duty exemptions went down from P82.97 billion in 2011 to P38.04 billion in 2014 owing to the various free trade agreements signed by the Philippines with other countries.
“So on average, we gave away up to 2 percent of our GDP in income tax and custom duties exemptions,” Chua said.
The enactment of the Tax Incentives Management and Transparency Act in 2016 allowed the DOF to track incentives systematically, Chua said.
