Taxes – paving the road to an Asean integration

During the 2003 Asean Summit in Bali, the Asean leaders declared that Southeast Asia is to be transformed into a stable, prosperous, and highly competitive region with equitable economic development, and reduced poverty and socio-economic disparities by the year 2020. Towards this goal, they had adopted the Asean Economic Community blueprint which aims to establish an Asean single market and production base whereby there would be a free-flow of goods, services, investments, capital, and skilled labor within the region.

The blueprint lays down various measures, such as elimination of tariffs, trade facilitation, customs integration, among other measures, to ensure that the goal of an Asean single market. However, it is imperative that domestic tax laws of each member state are amended accordingly, otherwise, countries such as the Philippines would be left out despite the integration.

The Philippines imposes a tax rate higher than its neighboring states. While the Philippines imposes a corporate tax rate of 30 percent, other Asean member-states such as Singapore, Thailand, Vietnam and Malaysia impose a corporate tax of 17 percent, 20 percent, 22 percent and 25 percent, respectively.

To address this, both houses of Congress have filed several bills to amend the rate of Philippine income taxes. One bill, in particular, seeks to lower the corporate income tax rates in order to maintain the competitiveness of the Philippines. This is Senate Bill 2163 which is entitled:

“AN ACT REDUCING THE CORPORATE INCOME TAX RATE, AMENDING SECTIONS 27 AND 28 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES”

The bill was filed by Senator Sonny M. Angara on March 5, 2014, and is pending in the Senate Committee on Ways and Means. The bill proposes to gradually lower the corporate income tax rate for domestic corporations, resident foreign corporation as well as non-resident foreign corporations. From the current 30 percent corporate income tax, the bill plans to reduce it to 29 percent by Jan. 1, 2015, then to 27 percent beginning Jan. 1, 2016, and finally settling at 25 percent beginning Jan. 1, 2017.

In the explanatory note of Senate Bill 2163, it clarified that the setbacks in revenues as a result of lowering the tax rates would be recouped since it would make the Philippines an attractive investment haven, with the end result of having an expanded tax base, increased economic activities and the creation of employment opportunities for the masses. With the recent positive forecast of Philippine economic growth, coupled with this proposed bill to lower the Philippine income tax rates, it was hoped that these changes would be effective in attracting foreign investors in the Philippines.

Senate Bill 2163 also proposes that the lowered tax rate would take effect starting Jan. 1, 2015. However, up to this date, the bill is still pending within its respective committees in Congress. This bill may still undergo various amendments, but until this bill is passed into a law, there is no certainty whether these amendments will be retained. Thus, these changes now rest on the shoulders of the Congress.

However, given the government’s approval of the recent changes to the Tax Code, such as the increase exemption of the 13th month pay and other benefits under Republic Act 10653, there may be a glimmer of hope that Senate Bill 2163 would come to light. Nevertheless, this proposed bill is a step in the right direction toward Asean integration.