SOURCE: Press and Public Affairs Bureau
House Bill 176 or the "Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO" Bill, hurdled on Wednesday the House Committee on Ways and Means chaired by Rep. Joey Sarte Salceda (2nd District, Albay) with a vote of 27-2 on Wednesday.
HB 176 is principally authored by Reps. Horacio Suansing Jr. (2nd District, Sultan Kudarat) and Estrellita Suansing (1st District, Nueva Ecija). It is a priority bill of the administration of President Rodrigo Duterte.
The measure seeks to encourage investments by slashing the country's corporate income tax (CIT) rate from 30 percent to 20 percent. It also aims to ensure that the grant of fiscal incentives helps bring in the greatest benefits, such as higher and more dispersed investments more jobs, and better technology; ensure fairness and transparency in the grant of fiscal incentives; and enhance the accountability of taxpayers through more efficient tax administration.
"Ultimately, this bill aims to yield benefits not just for the government, but more importantly, for Filipino taxpayers who have been diligently fulfilling their tax obligations by making the tax system more progressive, more efficient, and simpler," said the Suansing couple in their explanatory note of the bill.
According to Salceda, the country's steep CIT "is a clear and present danger in terms of risk to the economy". In comparison to the Philippines' CIT of 30 percent, neighboring countries in the region tout CIT rates of as low as 20 percent.
"Ina-adjust natin 'yung CIT kasi it is a clear and present danger to the competitiveness of the Philippines. Other countries have been bringing down their corporate income tax. Ours is 30. Our competitors are 20. Where do you think will be their situs of operations?" he said.
"This is a national imperative. We need to lower taxes to remain competitive," Salceda added.
Under the measure, the CIT shall be reduced by two percent every two years until it reaches 20 percent. The CIT shall be decreased to 28 percent beginning January 1, 2021 and shall reach 20 percent by January 1, 2029.
The bill also provides for the removal of not only preferential tax rate of certain corporate taxpayers but also the option for corporations, including resident foreign corporations, to avail of the 15 percent gross income tax.
Meanwhile, the Home Development Mutual Fund shall be exempted from income taxation given that the Social Security System (SSS), Philippine Health Insurance Corporation (PHIC), and Government Service Insurance System (GSIS) are already exempted.
The measure also grants the President the power to grant incentives if the project has a comprehensive sustainable development plan and will bring in at least US$200 million.
Income incentives shall be granted for a maximum of five years, removing the perpetual five percent on gross income earned (GIE) and limiting income tax holiday (ITH). However, investors and locators are encouraged to reapply after the five-year or seven-year period.
There are 12 incentives that can be granted. Among these are an ITH; a reduction of CIT to 18 percent wherein 15 percent shall go to the national government and three percent to local government units (LGUs); or a 30 percent depreciation allowance of qualified capital expenditure within three years wherein 10 percent is for buildings and 20 percent is for machinery and equipment.
Registered enterprises may also be granted up to 50 percent additional deduction on their labor expense in the taxable year for increasing direct local employment; up to 100 percent additional deduction on research and development and trainings; up to 100 percent deduction on infrastructure development; up to 50 percent deduction for reinvestment allowances to manufacturing; and up to 50 percent additional deduction on domestic input expense.
They may also be granted enhanced Net Operating Loss Carry-Over (NOLCO), allowing them to carry over losses during the first three years from the start of commercial operations.
In lieu of an ITH or a reduced CIT, deductions on expenses and enhanced NOLCO may be extended on a per industry basis, upon the approval of the Board of Investments (BOI).
The 18 percent CIT is also reduced by one percentage point every other year. A total of 1.5 percent of the proceeds will accrue to the municipality or city government, and if the enterprise is located in an independent component city (ICC) or highly urbanized city (HUC), three percent of the proceeds will accrue to the ICC or HUC.
Two years of incentives, inclusive of one-year ITH, shall be added for projects located in lagging areas; projects in areas recovering from armed conflict or major disasters; projects in agri-business outside major urban areas; or projects relocated from Metro Manila and nearby urban areas.
The value-added tax (VAT) treatment shall be based on location and export sales. For instance, registered enterprises with export sales of 90 to 100 percent and are inside ecozones or those utilizing customs bonded manufacturing warehouse are exempted from VAT on importation of capital equipment and raw materials and importation of source documents. Their VAT on domestic purchases of capital equipment and raw materials shall be zero-rated.
Enterprises presently availing of incentives are allowed to enjoy the same for two years after the effectivity of the measure. Thereafter, they can reapply for incentives under the Strategic Investments Priority Plan (SIPP). Those availing of the ITH are further permitted to enjoy this for the remaining period or for five years, whichever comes first.
Finally, those availing of the five percent GIE shall enjoy this for two to five years.
HB 176 shall be consolidated with HB 313 by Rep. Salceda, HB 1042 by Rep. Kristine Singson-Meehan (2nd District, Ilocos Sur), HB 1909 by Deputy Speaker Luis Raymund "LRay" Villafuerte Jr. (2nd District, Camarines Sur), HB 2084 by Rep. Junie Cua (1st District, Quirino), HB 2554 by Rep. Sharon Garin (Party-list, AAMBIS-OWA), HB 2704 by Deputy Speaker Aurelio "Dong" Gonzales (3rd District, Pampanga), HB 2956 by Rep. Michael Romero (Party-list, 1-PACMAN), and HB 3356 by Rep. Ann Hofer (2nd District, Zamboanga Sibugay). / Czarina Engracia / News and Documentation Section-Press and Public Affairs Bureau / House of Representatives of the Philippines