THE next Administration should push for a lower corporate income tax (CIT) rate in order to allow local enterprises to compete better with their regional peers, Benjamin Punongbayan, founder of Punongbayan & Araullo Grant Thornton, told The Manila Times.
Punongbayan said that to reduce the country’s CIT rate to the same level as that of its regional peers should be one of the priorities of the next administration’s legislative agenda.
He said it should not be viewed as a mere bonanza for businessmen but as an urgent measure necessary for local enterprises to ensure their competitiveness in line with the integration of the Asean economic community.
“A lower CIT rate would translate to economic benefits, both for the government’s coffers as well as for existing businesses and prospective investors in the country,” Punongbayan said.
P&A Grant Thornton is one of the largest public accounting firms in the country with 19 partners, more than 500 staff members, and four offices nationwide.
“The lowering of the income tax rate would ensure the competitiveness of our local businesses vis-à-vis their Asean counterparts. Right now, local businesses are worrying about paying taxes that are too high while their Asean counterparts do not,” he said.
The Association of Southeast Asian Nations (Asean) has created a single market and production base, called the Asean Economic Community (AEC), allowing the free flow of goods, services, investments, and skilled labor as well as freer movement of capital across the region. This integration commenced on December 31, 2015.
He added that a similar CIT rate with other Asean member countries would allow local companies to invest their money in more or less equal proportions as that of their counterparts who enjoy lower tax rates.
Highest in Asean
“Our income tax rate is the highest in the Asean region. We may have a lot to offer to investors in terms of skills and resources, but having the highest tax rate imposed upon businesses would drive investors away from us and even hurt our very own enterprises,” he added.
Under the National Internal Revenue Code of 1997 as amended, domestic corporations are taxed at the rate of 30 percent of their net income, or 2 percent of gross income or the minimum corporate income tax (MCIT), whichever is higher.
Meanwhile, resident foreign corporations get the same tax treatment as domestic corporations except for the MCIT, which is only applicable to domestic corporations.
Foreign corporations that are not engaged in business in the Philippines but somehow derive income here are taxed at the rate of 30 percent of their gross income.
In contrast, other Asean member countries have lower CIT rates: Brunei Darussalam, 20 percent; Cambodia, 20 percent; Indonesia, 25 percent; Laos, 24 percent; Malaysia, 25 percent; Myanmar, 25 percent; Singapore, 17 percent; Thailand, 20 percent; and Vietnam, 22 percent.
Punongbayan further noted that a lower CIT rate would translate into a more robust economy since such a move would encourage those belonging to the underground economy to come forward and be registered as taxpayers.
“The underground economy could not be more understated. It forms a big part of the country’s economy, and the only way to tap this segment is to encourage them to participate in the mainstream. Hence, lowering the tax rate is a strategic way of tapping them,” he said.
He added that lowering the CIT rate would also improve tax compliance, since persons conducting businesses in good faith only want a fair, understandable and reasonable tax policy under which taxes, when paid, would not amount to confiscation of income.
“We need measures that are not merely concern about meeting the government’s tax collection target. A lower CIT is more of a measure that would mutually benefit the government and the economy as a whole. This is one important measure to ensure that the Philippines, along with its local businesses, would not lag behind, especially so since ours is now being integrated under one Asean economic community,” Punongbayan said.