House approves second package of Duterte tax reform program

Notwithstanding serious objections from various business groups, including the American Chamber of Commerce of the Philippines (AmCham), the House of Representatives approved on second reading Tuesday night the second package of the Duterte administration’s tax reform program, now christened Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO).

With former president and now Speaker Gloria Macapagal-Arroyo vowing to put the measure on top of the Lower House’s legislative

priorities, administration ongressmenignored an appeal for the deferment of the second reading approval made by Albay Rep. Edcel Lagman.

Lagman noted that House Bill No. 8083, a sequel of the much-criticized Tax Reform for Acceleration and Inclusion (TRAIN)1 that is being blamed for the upsurge in inflation rate, contained numerous amendments that it required a “clean copy” for second reading approval.

HB 8083 proposes to reduce the corporate income tax from 30 to 20 percent by 2029 but at the same time, eliminates numerous incentives currently enjoyed by investors and the business sector.

It seeks to amend at least 31 provisions of the National Internal Revenue Code of 1997.

Quirino Rep. Dakila Cua, chairman of the House Committee on Ways and Means, assured oppositors that the bill will, in the long run, be beneficial for business as he pointed out that long years of tax holidays will be enjoyed by trades that will help guarantee direct labor employment, research and development and infrastructure development.

In a position paper, American companies in the country aired serious misgivings over the Duterte administration’s strong bid to have the bill passed.

But the bill will also broaden the tax base by removing some of the preferential or lower corporate taxes rates under the National Internal Revenue Code and rationalize incentives by ensuring these to be “performance-based, time-bound and transparent.”

AmCham noted that fiscal incentives remains imperative if the Philippines want to win the hearts of foreign investors, adding that the such business inducements “compensate for higher costs “of doing business in the

country.

In its position paper, Amcham warned that if the proposed second tax package of the Duterte government is pursued, this might “cause their firm to end further expansion.”

According to the business organization, this scenario is based on a survey of some 750 member firms currently benefitting from tax incentives under the Philippine Economic Zone Authority.

“Without incentives, most of these investors would not have invested in the Philippines. The foregone revenue is a cost of attracting their investment into the Philippines where its value is multiplied in terms of jobs created, new tax revenue generated directly and indirectly, technology transferred and income of small and medium size enterprises in the vicinity of the zones increased,” AmCham explained.

“Until the proposed [TRABAHO] bill is enacted, investors will face uncertainty about the future CIT and FI. Tax projections, an important part of calculations of future revenues, will be handicapped by this uncertainty,” the group stated.

AmCham members urged Congress to maintain a status quo of the current fiscal incentive package of PEZA as it noted that the bill degrades PEZA and other special economic zones.

They also appealed for the retention of Value-Added Tax rating and exemption from local taxes.

The Makabayan bloc also registered its strong objection to the measure, saying “increased revenues from increased indirect taxes under TRAIN 1 are actually meant to ensure funds to offset the losses arising from reduced corporate income taxes under TRAIN 2 (or TRABAHO), estimated at around P62 billion per two percentage point cut.”

“We strongly oppose the lowering of corporate income taxes to a uniform 20 percent under TRAIN 2 as it will disproportionately benefit foreign and big local corporations, which have managed to thrive and reap huge profits under the current 30-percent tax rate,” the seven party-list solons belonging to the group stated.

The Makabayan added: “It is detestable that TRAIN 2 proponents are using the Micro, Small, and Medium Industries (MSMEs) to justify the argument for a uniform 20-percent tax rate when, in reality, the big industry players will be the big winners under the scheme.”