Philippines: DOF sets conditions for lower corporate taxes

  • Businesses and corporations will only enjoy lower corporate income taxes under the second tax reform bill once the government successfully reduces the fiscal incentives granted to certain enterprises, the Department of Finance (DOF) said over the weekend.
  • According to Finance Secretary Carlos Dominguez, the second package of the Comprehensive Tax Reform Program (CTRP) seeks to cut corporate income tax to 25% from the current 30%, but only if there is a corresponding correction in country’s fiscal incentive system.
  • As such, Finance Undersecretary Karl Kendrick Chua said the DOF is proposing for a conditional cut in corporate income taxes, wherein every 1% reduction in the tax rate would only be applied if the government generates PHP26bn – equivalent to 0.15% of the gross domestic product – by rationalizing fiscal incentives.
  • The proposed second package of the CTRP, which seeks to reduce the corporate income tax while rationalizing fiscal incentives and tax perks enjoyed by certain business sectors, was submitted to the House of Representatives on 15 Jan 18.
  • In terms of fiscal incentives, Chua said the DOF would ask Congress to modernize the country’s fiscal incentives system to ensure that these are performance-based, time-bound, targeted and transparent.
  • The agency will also ask Congress to repeal 150 special laws that complicate the grant of fiscal incentives to businesses, and replace it instead with an omnibus law that would provide a single list of incentives applicable to all investment promotion agencies (IPAs).
  • He said there should be clear measures of a firm’s actual investment, job creation, countryside development, exports, and research and development to ensure that incentives are given based on their performance.
  • Incentives should also be targeted to minimize leakages and distortions in the tax system, and be time-bound so that tax perks are not granted forever to businesses, Chua said.

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