20% corporate tax eyed in 2027
The administration is proposing to follow its onetime, big-time cut in corporate income tax (CIT) with a series of one percentage point reductions between 2023 and 2027, the Department of Finance (DOF) said.
After the CIT is lowered from 30 percent to 25 percent by July this year, Finance Assistant Secretary Antonio Joselito G. Lambino II said the DOF will further bring down the rate in the succeeding five years until it reaches to 20 percent.
“From 2023 to 2027, we are proposing to reduce the CIT by one percentage point per year until we get to 20 percent,” Lambino said in mobile phone message, noting this proposal is under the new corporate recovery and tax incentives for enterprises (CREATE) bill.
Under the originally DOF proposal, or the corporate income tax and incentives reform act (CITIRA), the executive wanted to reduce the CIT rate, currently the highest in ASEAN, from 30 percent to 20 percent in 10 years.
But to help businesses recover faster from the impact of the coronavirus pandemic, the DOF tweaked and repackaged its CITIRA bill, now called CREATE, to stimulate the economy amid the expected of up to 1.5 million job losses.
Lambino said the drastic reduction in CIT beginning July this year, once approved by Congress, would unleash ₱667-billion windfalls for companies, the government’s largest stimulus package in history.
He explained the DOF’s proposed across-the-board five percentage points CIT cut is equivalent to ₱42-billion tax savings for companies in the second-semester of 2020 alone.
Ultimately, the one-time, bigtime reduction will deliver another ₱625-billion savings for corporations for the next five years, Lambino said.
“It is the largest stimulus package through corporate tax reform in the country’s history. The reform will put more money in the hands of businesses to support their employees and reinvigorate their operations post ECQ [enhanced community quarantine],” Lambino said.
Last week, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said they are now supporting the immediate 25 percent corporate tax rate starting July, and a longer net operating loss carry over.
Chua also said the government will give new investors “whatever they want, so long as they give us whatever we want, in terms of investment, jobs, or innovation” through tailored-fit tax incentives.
“For existing investors, [we will give] four to nine years no change [in their current incentive], that is a much longer sunset for them compared to the CITIRA,” he said.
But Chua said “The idea of grandfathering, I think is not really a good idea because it violates the core principle of time bound and performance-based incentives.”
The government will also provide more tailored-fit tax perks for investors who will invest in the countryside, Chua added.
He, however, pointed out that these tax incentive regimes, under the CREATE bill, will be "managed, decided and governed” by the Fiscal Incentives Review Board (FIRD).
“The grant of incentives will be performance-based, targeted, time-bound and transparent. That is non-negotiable from the economic managers perspective,” he said.