DoF sees reduced corporate taxes creating 1.4 million jobs

THE DEPARTMENT of Finance (DoF) said it expects 1.4 million jobs to be created when the corporate income tax rate is reduced to 20% after 10 years.

In a statement on Wednesday, the Finance department said that the first two-percentage-point reduction in the corporate income tax rate to 28% in 2021 will itself generate an estimated 113,944 new jobs.

“With lower tax rates, such a proposal is hardly inflationary while creating over a million jobs over the medium term as firms expand with more money at their disposal,” Finance Undersecretary Karl Kendrick T. Chua was quoted in the statement as saying.

The DoF’s estimate compares with that of the Confederation of Wearables Exporters of the Philippines (ConWEP) of a 40% reduction in the industry’s work force if incentives are rationalized in the latest round of tax reform legislation. Business groups, especially those registered with the Philippine Economic Zone Authority, have said that incentives rationalization will likely result in job losses as locators seek other production bases.

The House of Representatives approved on final reading House Bill 8083, or the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) on Sept. 10. The bill seeks to cut the corporate income tax rate gradually to 20% by 2029 via a two-percentage-point reduction every other year starting 2021.

Fiscal incentives will be limited to industries identified in the Strategic Investments Priority Plan (SIPP) and will make them subject to performance benchmarks. Incentives will be harmonized into a single menu, including: a three-year income tax holiday, after which, a special net income tax rate of 17% will be charged starting 2021; deductions for labor, research and development, training, and infrastructure development expenses; and some customs duties exemptions for up to five years. Following this, companies will be taxed at the prevailing corporate tax scheme.

Currently, income tax holidays can be as long as nine years, with locators enjoying a 5% tax on gross income earned in lieu of all other taxes in perpetuity.

Finance Assistant Secretary Antonio Joselito G. Lambino II said that despite the streamlined incentives, job creation should still be net-positive.

“We also expect to be employment-positive on the fiscal incentives side, particularly because we have included in the bill incentives for job creation and training, among others. Additional employment numbers are difficult to estimate at this point because sectors and industries that will qualify for these employment-enhancing incentives will be based on the Strategic Investments Priority Plan of BoI (Board of Investments),” he said in a mobile phone message yesterday.

The DoF said that most of the country’s top 1,000 corporations enjoy fiscal incentives, while about 90,000 small-and-medium enterprises (SMEs), and some of the hundreds of thousands of micro-enterprises have to pay the regular 30% income tax rate.

SMEs currently employ about 33% of the total labor force, based on 2016 data from the Department of Trade and Industry (DTI).

“This pro-investment tax reform package is seen to be even more attractive to firms because it will give them additional incentives on labor, domestic input and training under the proposed menu of tax incentives, while activities that already provide positive benefits to society, such as those that develop the countryside, create jobs and contribute to exports can continue to enjoy tax incentives,” said Mr. Lambino. —