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Philippines Seeking Passage Of Corporate Tax Plan By Summer

Friday, May 10, 2019

The Philippines Government has said that it hopes to secure approval from Congress of the corporate income tax reform package within the next few months.

During a recent Cabinet meeting it was emphasized that micro, small, and medium sized enterprises (MSMEs) overwhelmingly support the Government's reform proposals.

Finance Assistant Secretary Antonio Lambino II said that independent surveys carried out at the tail end of 2018 had shown that the Tax Reform for Attracting Better and High-Quality Opportunities bill, or TRABAHO bill, has the support of 91 percent of MSMEs.

The TRABAHO bill would implement Package 2 of the Duterte administration's Comprehensive Tax Reform Program. The headline measure is a gradual reduction in the corporate tax rate from 30 percent to 25 percent.

The Government also intends to comprehensively review all existing tax breaks for companies, to ensure they are "targeted, transparent, and time-limited."

Finance Secretary Carlos Dominguez III earlier said the reduction in CIT would benefit more than 99 percent of corporations in the Philippines, but a small percentage of businesses representing the "interests of a few" have opposed the move to rationalize fiscal incentives that have long benefitted them, he said.

Dominguez said the CIT would gradually be reduced from 30 percent to 20 percent to bring the Filipino rate closer to the regional average. He said having a CIT rate higher than those of neighboring economies is a barrier to outside investment.

He said the currently complex corporate income tax code, along with the various tax breaks, had resulted in a number of large businesses enjoying effective corporate income tax rates of between 6 and 13 percent, while smaller businesses typically face the 30 percent standard rate.

As outlined previously by the Filipino Government, package 2 will include the introduction of new income tax holidays for start-ups of up to three years, and a reduced corporate income tax rate for up to five years of 15 percent, a 50 percent tax allowance for qualifying capital expenditure, and new tax breaks for research and development, as well as for expenditure on training, labor expenses, infrastructure development, and reinvested profits.

The Government had hoped to have passed Package 2 by now, following approval from the House Ways and Means Committe back in August 2018. The Committee's approval of the package "in principle" has enabled the whole package of measures to be debated by Congress, rather than having each measure considered on a piecemeal basis.

The first package of the Comprehensive Tax Reform Package was enacted late last year and cut personal income tax rates. In addition, it repealed several value-added tax exemptions, adjusted excise tax rates for fuel, coal, and automobiles, and introduced a tax on sugary beverages.