Corporate tax reform to create 1.4-M jobs in 10 years

MANILA -- The Duterte administration’s tax reform package that aims to lower the corporate income tax (CIT) and overhaul the country’s “convoluted” fiscal incentives system is projected to generate some 1.4 million jobs, mostly in small and medium enterprises (SMEs), over the next decade and create a business environment conducive to inclusive growth, according to Finance Secretary Carlos Dominguez III.

Dominguez said in a statement Thursday at a business forum that the proposed staggered cuts in the CIT from 30 to 20 percent over a 10-year period as provided under the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill will energize hundreds of thousands of SMEs and encourage them to use part of their saving from lower tax payments to expand their businesses and hire more workers.

He called on the captains of Philippine business gathered at the Wallace Business Forum Roundtable to thoroughly study the CIT reform proposal in its entirety, including “the more controversial component” on the rationalization of fiscal incentives, as he expressed the hope that they would “come to the same conclusion as we did: that the reforms will be beneficial to our domestic economy.”

“We urge the business community to thoroughly read the measure, rather than base their positions on hearsay and opinions of uninformed people, so that you can work with the government in explaining the true benefits of the TRABAHO bill to the public,” Dominguez said at the event organized by businessman Peter Wallace held Thursday at the Makati Shangri-La Hotel.

Dominguez said that contrary to the perception poised by this proposed tax reform’s critics, the Duterte administration’s plan will not eliminate incentives for investors but would even improve them by offering a better set of perks that includes the following: 50 percent deduction on incremental labor costs; 100 percent deduction on training, research and development; and 50 percent deduction on purchases of local raw materials.

The set of incentives under Package 2 will be transparent, time-bound, targeted and performance-based, Dominguez said, to, among others, help eliminate corruption and cronyism, and “spare Filipino taxpayers from subsidizing the profits earned by a select group of corporations enjoying redundant incentives in a convoluted system.”

The proposed CIT cuts and reforms in the fiscal incentives system constitute Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP).

The Package 2 version of the House of Representatives -- the TRABAHO bill-- was approved by the chamber last September, while the counterpart version of the Senate -- SB 1906 or the Corporate Income Tax and Incentives Reform Act authored by Senate President Vicente Sotto III -- is still being studied by the chamber’s ways and means committee.

He noted that the reforms being implemented so far by the Duterte administration on its end, including improvements in the ease of doing business, have helped raise net

foreign direct investment (FDI) inflows by a hefty third or 31 percent to USD7.4 billion in the first 8 months of the year from USD5.7 billion during the same period last year.

Apart from pointing to deepening investor confidence in the Duterte administration, Dominguez said the FDI surge this year proves that investors are not being spooked by tax reform, as claimed by certain groups.

While FDIs are dramatically increasing, the Philippine Economic Zone Authority (PEZA) has claimed a slowdown in investments in areas under its jurisdiction, which, Dominguez said, “can only mean they are trying to attract investments that cannot be viable without unreasonable incentives.”

“These are not the investments we need to become a strong economy. The more meaningful investments are being made by competitive companies that do not ask for tax holidays and other incentives,” he said.

“Those who oppose the reform of the incentives program are arguing against the facts,” he added. “All over the world, fiscal incentives are less important in investor decisions than efficient infrastructure and a better-educated and healthier people. We cannot fully address these more beneficial concerns if we let bureaucrats give away revenue for private profit. We need to be fiscally responsible on this matter.” (DOF PR)