Philippines: House Oks TRAIN-II

  • WITH 187-14-3 votes, the House of Representatives on 10 Sep 18 approved on third and final reading the second of up to five planned tax reform tranches that cuts the corporate income tax (CIT) rate and removes fiscal incentives deemed redundant.
  • Among others, the House Bill No. 8083, or the “Tax Reform for Attracting Better and High-quality Opportunities” (TRABAHO) bill, will cut the CIT to 20% gradually from the current 30% in order to lure investments by putting the rate at par with much of Southeast Asia.
  • At its current rate, the Philippines’ CIT is higher than those of Cambodia, Thailand and Vietnam which have a 20% rate as well as Singapore’s 17%.
  • Another key feature is a uniform tax incentive scheme to be administered by all investment promotion agencies, a 5- to 7-year cap on provision of income tax holidays and removal of redundant perks that have been costing the economy hundreds of billions of PHP in foregone revenues annually.
  • Authored by Quirino Rep. Dakila Cua, chairman of the House committee on ways and means, the bill 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.
  • The bill seeks to reduce the current 30% corporate income tax rate with the following timetable: 28% in 2021; 26% in 2023; 24% in 2025; 22% in 2027; 20% in 2029.
  • It also proposes to grant fiscal incentives to registered activities of exporters and industries listed in the Strategic Investments Priority Plan. It provides subsidies through school and housing vouchers and allocates funding for universal health care.
  • The measure practically breezed through the House, moving from committee-level approval to securing its final stamp within just 33 days. Arroyo has vowed to support TRABAHO, which is among the priority bills of President Rodrigo Duterte.
  • TRABAHO will now go to the Senate, where it is unlikely to get passed in 2018 as some senators seeking re-election in 2019 try to avoid drawing the ire of voters who fear the bill will result in job losses.
  • While corporate income tax rates will go down, firms operating in economic zones will have to deal with less tax incentives. Specifically, TRABAHO aims to cut make tax perks like income tax holidays time-bound, performance-based and targeted on specific industries. Critics say this could drive away existing and future ecozone investors and result into job losses.
  • A top official of the Japanese Chamber of Commerce and Industry in the Philippines has warned that Japanese companies may go bankrupt or close their operations if the Philippine government withdraw tax concessions
  • “They do not want to expand operations here. It’s the first step for them,” Nobuo Fujii, vice-president of the organisation with 650 companies as members, told Kyodo News on Monday.
  • Nobuo Fujii, vice-president of the organisation with 650 companies as members, said the potential change with the biggest impact would be if the Philippines began to impose the value added tax on Japanese companies operating inside special economic zones.
  • Those companies are now exempt from paying that 12% tax. Fujii said half the chamber’s members are located inside these designated zones, particularly in the Subic Freeport Zone and in industrial parks in the provinces of Pangasinan and Batangas.
  • Citing information from the Philippine Economic Zone Authority, Fujii said company operations inside these economic zones employee about 1.3 million workers, about half of whom are employed by Japanese companies.
  • He also said about five times that number of jobs are indirectly dependent on that employment, including positions in such areas as food service and security.

External Link: http://www.bworldonline.com/house-oks-second-tax-reform/

External Link: https://www.philstar.com/headlines/2018/09/11/1850485/house-gives-final-approval-train-2-bill

External Link: https://www.philstar.com/headlines/2018/09/10/1850345/speaker-arroyo-delivers-passes-trabaho-house

External Link: https://www.scmp.com/news/asia/southeast-asia/article/2163647/proposed-philippine-tax-reforms-prompt-japanese-firms-issue

11-Sep-2018


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