Seeing the benefits to small and medium enterprises (SMEs), the Cebu Chamber of Commerce and Industry (CCCI) has expressed its support for the proposed Tax Reform for Acceleration and Inclusion (Train) Package 2.
But the chamber pointed out several concerns with the proposed bill, which is currently being deliberated in Congress, including further reduction of corporate income tax (CIT) and to retain some incentives by existing corporations for a certain period.
“At the outset, we pledge our full support to the government’s Comprehensive Tax Reform Program. We willingly embrace the objectives of the Duterte Administration to generate substantial revenues in order to attain the AMBISYON 2040 to end poverty in the country,” read CCCI’s position paper submitted to the Department of Finance (DOF).
It was signed by CCCI President Antonio Chiu.
CIT rates
The proposed Train 2 aims to gradually reduce CIT rates to no less than 25 percent from the current 30 percent, which is one of the highest rates in the Southeast Asian region.
However, the CCCI said that even at 25 percent, the country’s CIT will still be the highest in the region. Singapore has a CIT rate of 17 percent while Thailand, Cambodia and Vietnam have CIT rates of 20 percent.
“If the Philippines will adopt a higher CIT rate than Thailand, Vietnam, and even Cambodia, how can we compete with these countries in attracting foreign investors? Not to mention the fact that under the proposed package, existing incentives will have to be rationalized i.e. limited, restricted or removed,” the CCCI said.
The CCCI suggested that the CIT rate should be reduced from 30 percent to 20 percent and could be undertaken in a span of 10 years without conditions.
Yesterday afternoon, the DOF held an information drive in Cebu about the existing Train law and the proposed Train 2.
Incentives
Arnelyn Abdon, director IV of DOF’s strategy, economics, and research group, explained that the law would not outright remove tax incentives currently being enjoyed by big corporations and multinational companies that are doing business in the country.
Instead, she said that Train 2 aims to “rationalize and harmonize” incentives to make it performance-based, targeted, time-bound, and transparent.
“We want everyone to contribute. In package one, we asked households to contribute with higher excise taxes. In package two, we ask corporations to contribute by modernizing cash incentives,” she said in a press conference at Henry Hotel.
Based on government data back in 2015, the government has given out P300 billion worth of incentives to less than 3,000 companies with its “complex” system of incentives.
She said there are over 200 different laws giving out incentives through 14 different investment promotion agencies (IPAs).
Several stakeholders have already expressed concern over the Train 2 proposal especially in the information technology (IT) and business process management (BPM) sectors, which are one of the biggest job generators in Cebu.
Concern raised
Wilfredo “Jun” Saa Jr., managing director of the Cebu IT-BPM Organization (CIB.O), said they have been receiving feedback from industry players that they are “concerned” on the possibility of incentives being taken away.
He said the CIB.O is expecting Philippine Economic Zone Authority (PEZA) Director General Charito Plaza to update them about details on the incentives under Train 2 on July 12.
However, Abdon assured yesterday that not all incentives will be taken away. Instead, there will be just one comprehensive “menu” of all incentives that can be offered by the government.
Who gets them
Currently, she explained that there are some firms getting incentives for more than 20 years already, while there are also some incentives that are given for life.
With the new set of incentives, she said priority will be given to companies that generate employment and export, and espouse innovation and research and development, among other considerations.
“Every peso we give as incentive is a peso that government cannot collect to spend on other programs. So we want that peso to benefit the economy more,” Abdon said.
Part of the Train 2 proposal is the formulation of a Strategic Investment Priorities Plan (SIPP) that will list all the preferred areas of investment activity. It will be crafted by the Board of Investments and the Department of Trade and Industry.
Abdon said that the government will also take in to consideration the contributions of the IT sector and the BPM sector in the SIPP.