A second tax reform package seeking to cut corporate income taxes and rationalize incentives is ready to be acted upon by the House of Representatives, a Cabinet official said, with the government looking to add to the just-implemented Tax Reform for Acceleration and Inclusion (Train) law.
“We will submit the proposal before the House of Representatives’ opening session on Monday,” Finance Secretary Carlos Dominguez 3rd told reporters.
Package Two of the government’s Comprehensive Tax Reform Package calls for the lowering of corporate income taxes to 25 percent from 30 percent and a redraft of the incentives system to make the perks performance-based, targeted, time-bound and transparent.
The latter, officials have said, will ensure that the incentives will lead to more jobs, stimulate countryside development and promote research and development. Sunset provisions will ensure that the perks do not last forever and are reported so the government can determine the magnitude of their costs and benefits.
Package Two will be revenue-neutral for the government, the Finance department said.
Finance Undersecretary Karl Kendrick Chua last week claimed that perks with no time limits had resulted in annual losses of over P300 billion based on 2015 data.
He said that income tax holidays and special rates enjoyed mostly by large businesses accounted for P86.25 billion of lost revenues, with another P18.4 billion coming from customs duty exemptions.
The bulk, or P159.82 billion, was due to exemptions from paying the value-added tax on imports and another P36.96 billion from local VAT, Chua added, although part of this tax will eventually have to be refunded because these are imposed on exporters.
The total P301.22 billion in losses does not yet include exemptions from the payment of local business taxes and tax leakage estimates.
Package Two is separate from the still-to-be approved Train 1B, which the Finance department wants Congress to pass within the first quarter of this year.
Train 1A, or Republic Act 10963, was passed by Congress in December and took effect at the start of the year. The law lowered personal income taxes but raised excise and other taxes on items such as fuel and cars, with revenues expected to be used for the Duterte administration’s ambitious “Build Build Build” program.
Officials have said that estimated revenues, while substantial, will not be enough thus the need for Train 1B, which includes complementary measures such as motor vehicle users’ charges.
The Finance department has said that potential revenues from Train 1A and 1B could hit P969.2 billion by the end of 2022, the Finance department said.
Train 1A will account for the bulk or P786.4 billion.
“In Package 1, Congress passed two-thirds of the needed revenue for 2018 and it is expected to pass the balance early in 2018 to help us achieve our revenue and deficit targets,” Dominguez said last week.