THE country’s finance chief will continue to push for the immediate passage of the Corporate Income Tax and Incentives Reform Act (CITIRA) pending in the Senate as it could act as a stimulus to the economy given the impact of the coronavirus disease 2019 (COVID-19) pandemic.
Carlos Dominguez, Department of Finance secretary, said in a webinar yesterday if legislators are pushing for a stimulus package to mitigate the impact of the COVID-19, they should consider passing the bill, which is part of the administration’s comprehensive tax reform program.
“We are going to push the CITIRA bill very hard because, actually, the big part of the CITIRA bill which nobody talks about, is a reduction in taxes, and in that way we are prepared to help everybody across the board, by reducing their corporate income taxes, so that I think could be a big stimulus to the economy,” Dominguez said in the webinar organized by the Harvard Business School Owners and Presidents Management Program Philippines.
“I am going to encourage (legislators) to please pass the CITIRA bill particularly because of the tax incentives there that can act as a stimulus to the economy,” he added.
Under Senate Bill 1357, CITIRA will reduce corporate income tax (CIT) rates by one percentage point every year from the current 30 percent to 20 percent by 2029.
Firms with qualified activities may avail of two to four years of income tax holiday, and another three to four years of the Special Corporate Income Tax (SCIT) rate, which shall be eight percent of gross income by 2020, nine percent by 2021, and 10 percent by 2022, in lieu of all taxes.
The SCIT may be extended by three or four years at a time for a maximum of 12 years.
Firms with qualified activities may also avail of the regular CIT tax regime with enhanced deductions for five to eight years, which may be extended by three or four years at a time for a maximum of 12 years.
Enhanced deductions include up to 50-percent additional deduction on power expense, which is a new provision not found in earlier versions of the bill; up to 50-percent additional deduction on labor expense; up to 100-percent additional deduction on research and development; up to 50 percent additional deduction on domestic input expense; a deduction for reinvestment allowance to the manufacturing industry (up to 50 percent of reinvestment); depreciation allowance of the assets acquired for the entity’s production of goods and services (additional 10 percent for buildings and 20 percent for machinery); and enhanced net operating loss carry over.
The Senate version also extends the sunset period for firms currently paying the rate of five percent of gross income earned in lieu of all taxes, from five years in the House to seven years for firms that export 100 percent of output, employ 10,000 Filipino workers in the incentivized activity, or are engaged in “footloose” manufacturing.
The bill defines “footloose” as a manufacturing activity or project with a direct labor expense to asset ratio of at least 70 percent for three consecutive years immediately preceding the year of implementation of CITIRA, exports 100 percent of its manufactured goods, and whose actual area of operation is outside Metro Manila.
“People misunderstand CITIRA, they think we want to remove incentives, actually we don’t want to, we want to make them more targeted. The problem of our incentives system, which quite frankly hasn’t worked in the last 40 years, is the fact that we open up, we pass a law, we make rules and regulations and make it a one size fit all program and wait for people to come in. That I think is the wrong way to go about doing foreign investment incentive,” Dominguez said.
“Invite the best companies in the world to come here and offer them, tell us what is required for you to bring your staff here. Do you require tax incentives? For us to pay for the training of your people? Free warehouse, factory space? That I think is what we should do rather than open our doors and expect people to start trooping in, that hasn’t worked. We are always behind other countries, so why do we keep on doing the same thing? Why don’t we make a targeted program, tailor-fit to companies who we want to come here,” he added.
