The legislative agenda for business

President Rodrigo Duterte at his third State of the Nation Address (SONA) on July 23 urged lawmakers to pass Package 2 of the Tax Reform for Acceleration and Inclusion (TRAIN) law, while firmly saying no to proposals to reverse TRAIN Package 1 amid the high inflation rate recorded for the country this year (philstar.com July 26, 2018).

Package 1 of TRAIN was signed into law on Dec. 19, 2017 and officially implemented on Jan. 1, 2018. It cut personal income tax rates — no taxes for those earning P250,000/year and below — while also cutting certain exemptions to the value-added tax (VAT), increasing excise tax rates for fuel, coal and automobiles, and imposing a tax on sugar-sweetened beverages.

Package 2 concerns business taxes.

The Department of Finance (DoF) formally submitted to the House of Representatives on January 23 this second package that will reduce corporate income tax rates from 30 to 25% while “modernizing” incentives for companies to make these “performance-based, targeted, time-bound, and transparent” ( www.dof.gov.ph/taxreform January 23, 2018). It is not fair that a small select group of top enterprises enjoy preferential corporate income tax rates of just six (6) to 13% while an overwhelming majority pay the regular rate of 30%, the DoF stressed.

Finance Undersecretary Karl Kendrick Chua said “tax incentives enjoyed mostly by big businesses such as income tax holidays and other perks with no time limits that are costing the government over P300 billion annually in foregone revenues not including exemptions from the payment of local business taxes and the estimates on tax leakages.” Per 2015 data, income tax holidays and special rates account for additional P86.25 billion of the revenue losses, while custom duty exemptions account for P18.4 billion more. “So on average, we gave away up to 2% of our GDP in income tax and custom duties exemptions,” Chua said (Ibid.).

And if the gut issue of an inflation rate of 5.2% (still rising) experienced after the sweet and sour offerings of Package 1 to individual taxpayers upset stomachs, incentives to certain businesses that the

DoF wants to take away seem to make Package 2 unpalatable, despite the promised reduction of the corporate income tax.

Of course the Philippine Economic Zone Authority (PEZA) reacted to the cutting of investment incentives — which are the agency’s reason for being. “If the government gave away a total of P235.307 billion to PEZA companies in 2015 in the form of tax incentives, PEZA companies in return gave P3.317 trillion to the Philippine economy over its existence. In effect, for every P1 that the government gives to PEZA companies in terms of incentives, P14 is plowed back by our PEZA companies to the Philippine economy,” said PEZA Director-General Charito B. Plaza, author of the PEZA when she was congresswoman (business.mb.com.ph

April 12, 2018).

It is not true, as the DoF says, that PEZA grants perpetual incentives to investors. But companies continue to add new products and technology and for that they get additional incentives, Plaza clarified. “These incentives have been supported by four administrations already and it has worked,” she pointed out (Ibid.).

“We should also look at the social progress that was created by these industries and ecozones. Like the municipalities before are now cities. The poverty index, the crime index, the insurgencies, eradicated in these areas where there are economic zones and industries. And that will happen to all other communities that will soon have ecozones” (Ibid.).