DOF warns Senate version of TRAIN 2 to cut gov’t revenues

The Senate’s proposed version of the second package of the Comprehensive Tax Reform Program (CTRP) may result in a revenue loss for the government should it be passed into law, the Department of Finance (DOF) said yesterday.

In an interview, Finance Undersecretary Karl Kendrick Chua said the proposed Senate version of the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill may not be revenue-neutral as proposed by the DOF.

Chua said the bill, due to changes from the original DOF proposal, could instead cut government revenue by as much as P130 billion in the first year of its implementation.

“(It’s a) P130 billion loss,” Chua said when asked for the estimated revenue impact of the bill.

This is higher than the revenue loss estimated under the House of Representatives-approved version of the TRABAHO bill, which based on the DOF could reach P30 billion and P67 billion in the first two years of its implementation.

According to the undersecretary, the expected losses may be due to the automatic and immediate reduction of corporate income taxes to 25 percent from the current level of 30 percent.

This is contrary to the original DOF proposal, which provides that every one percentage point reduction in the corporate income tax rate would only be applied the following year if the government generates P26 billion—or equivalent to 0.15 percent of the gross domestic product—by rationalizing fiscal incentives.

“Sotto said he wanted more immediate impact on small and medium enterprises. That’s why he decided instead of having it conditional or later, he wanted it immediate. But I also informed him of the revenue implication,” Chua said.

Chua said the possible revenue loss is also higher than the House version given that the Senate bill provides an immediate five-percentage point reduction in corporate income taxes. This is higher than the adjustment of two-percentage points every two years starting 2021 proposed under House Bill 8083.

“The House (version) is two percent reduction, the Senate is five percent, that’s why it’s bigger,” Chua said.

Despite this, Chua expressed hope that the Senate would consider adopting the original DOF proposal given the revenue impact in relation to the budgetary requirements of the government.

“The hearings I hear will begin next week. So there will be ample time. Once the senate deliberate the budget and see the vast needs, they have to consider the revenue implication,” he said.