Philippines: TRAIN 2 seen to lessen Philippines competitiveness: BMI

  • The second package of the government’s tax reform program is seen to make the country less competitive resulting to a slowdown in investments over the near term, BMI Research said.
  • In its latest economic analysis, the research arm of the Fitch Group said the second of the five packages under the comprehensive tax reform program (CTRP) includes the removal of fiscal incentives.
  • “While the proposed tax reforms may be fiscally prudent, it will likely make the Philippines less competitive versus its regional peers. Investment could slow over the near-term as the proposed conditional corporate tax reduction and repealing of fiscal incentives create uncertainties for businesses,” it said.
  • The Department of Finance (DOF) has submitted the second package which is now under deliberation at the House of Representatives. It aims to lower corporate income taxes and reduce fiscal incentives to investors to achieve the government’s objective of making the tax system fairer and more efficient.
  • Under the proposal, the corporate income tax rate would be reduced gradually to no less than 25% from 30%, while modifying tax incentives for companies to make these ‘performance-based, targeted, time-bound, and transparent.’
  • “While the proposed tax reforms in the second package will streamline the complex tax system, we believe it will likely weigh on the country’s competitiveness, and create uncertainty for investors in the near-term,” BMI Research said.
  • BMI Research said the latest draft of the DOF’s TRAIN 2 has called for an overhaul and streamlining of these incentives to make tax perks more equitable and effective in creating jobs, developing industries, and attracting more foreign direct investment, as well as generate more revenues to fund the government’s PHP8tr Build Build Build infrastructure program.
  • “Despite the proposed corporate income tax cut, we note that tax rates in the Philippines will still be one of the highest and least competitive in the region, and the repealing of tax incentives to investors will likely make it worse,” it said.
  • According to BMI Research, the proposal comes at a time when other countries in the region are trying to offer more tax incentives in order to attract foreign direct investments.

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