The Department of Finance (DOF) is urging Congress to approve the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA), with the finance chief hoping it will be passed by the legislative branch by March this year.
Carlos Dominguez, DOF secretary, said he remains hopeful that the measure will be passed before Congress takes a break next month.
Dominguez said in a statement the sooner Congress approves the CITIRA, the quicker potential investors will drop their “wait-and-see” attitude and decide to set up their businesses in the country to further rev up the economy and create at least 1.5 million jobs.
Karl Kendrick Chua, DOF undersecretary, said earlier uncertainties by investors over this measure are not because of its provisions per se, but because of the length of time it has taken the Congress to act on this reform.
The CITIRA was approved in the House of Representatives in September last year. The other tax reform components — Package 3, which aims to reform the land valuation system, and Package 4, which seeks to rationalize the tax rates in the financial sector — were likewise approved by the House last year.
All these packages under the Comprehensive Tax Reform Program are pending in the Senate.
Dominguez said CITIRA will ensure incentives are timebound and performance-based, like in Singapore where incentives are given up to 40 years but subject to a performance review every five years.
“Investment regulations (in Singapore) require firms to regularly submit progress reports and any breach of the performance contract is subjected to revocation of the incentives.
This is what time-bound and performance-based mean,” Dominguez said.
CITIRA will also ensure that incentives are specifically targeted and more transparent, like in Thailand where the names of incentive recipients are published on its Board of Investments website, he said.
Thailand also installed a good system to target industries by giving more tax incentives and longer availment periods to high-priority sectors that are pre-identified under its investment priority plan, he added.
Dominguez said CITIRA will overhaul the current system that has given away P441 billion of tax perks in 2017 alone to only 3,150 companies that enjoy discounted corporate income tax rates of between six and 13 percent, while almost a million other firms, including small and medium enterprises that employ a majority of Filipino workers, pay the regular rate of 30 percent, which is the highest in the region.
He said the government was also cheated of about P63 billion in 2017 by firms that either abused transfer pricing rules or shifted profits and costs to reduce their tax liabilities.
Combining this loss with the P441 billion in tax perks given away to favored companies, he said the government’s foregone revenues reached P504 billion in 2017 alone.
The DOF also said some companies have been receiving incentives from 15 to more than 40 years now without the government being able to determine if the perks they have been receiving are actually benefiting the Philippine economy.
