Expert raises caution on incentive reform

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    A tax expert yesterday called for careful study on the proposed rationalization of incentives and its possible impact on revenues and jobs, suggesting the need to set safeguards for those which will bear the brunt of such reform.

    Ronald Mendoza, dean of the Ateneo School of Government, in a forum in Taguig City yesterday, said previous reforms — the Tax Reform for Acceleration and Inclusion (TRAIN) and the Rice Tarrification Law — had more negative effects than initially anticipated.

    Mendoza said the rollout of TRAIN-1 resulted to high inflation because of bad timing while Rice Tarriffication led to depressed palay prices.

    With the planned Corporate Income Tax and Incentives Rationalization Act (CITIRA) which intends to lower corporate income tax (CIT) and harmonize fiscal incentives, Mendoza raised issues for clarification.

    “The reform package is expected to be revenue-neutral, so the reduction of CIT will likely be compensated by the rationalization of fiscal incentives. This suggests that some sectors will definitely face reduced incentives—and it is an empirical question as to the possible investment and job impacts of this adjustment,” Mendoza said.

    He also raised questions related to the projected investment and job-creation impact of the CIT tax cut.

    “The net impact of all these adjustments could better inform us of the full implications—hence the necessary safety nets and policy roll out protocols—supporting this reform,” Mendoza said.

    For now, there is no evidence nor information on the full impact of CITIRA, he added.

    Mendoza said government must lay out a concrete plan and safeguards for the rollout of all of its reforms “particularly those triggering massive structural adjustments in key economic sectors with vulnerable populations such as farmers and workers.

    “The clear challenge presently is to better understand the consequences of reform rollout so that government and the private sector are better prepared for any potential unintended consequences and in order to offer adequate safety nets for the groups most affected by dramatic structural adjustments,” he added.