Senators told to heed Duterte’s Trabaho call
The Senate is being urged to follow the House of Representatives in approving a second tax reform package that has been opposed by business groups and even some government agencies.
In a statement released over the weekend, Finance Secretary Carlos Dominguez 3rd called on senators to give their “stamp of approval” to the Comprehensive Tax Reform Program’s Package 2, which calls for a gradual lowering of corporate income taxes and the modernization of fiscal incentives.
The House of Representatives earlier this month approved its version of the measure, the proposed Tax Reform for Attracting Better and Higher Quality Opportunities (Trabaho) Act.
Senators, however, have expressed concerns that the measure could force investors to leave and lead to job losses—a view shared by industry groups, business chambers and even incentives-granting agencies such as the Philippine Economic Zone Authority.
The proposed law remains pending at the Senate Ways and Means Committee.
President Rodrigo Duterte wants the bill passed before the end of the year and Dominguez urged senators to “likewise heed the president’s call for an equitable tax system…”
The Finance chief, in the statement, said that correcting flaws in the fiscal incentives system, which he described as currently favoring a select set of enterprises that can well afford to lose the perks, would level the playing field, especially for small and medium enterprises, and attract new players.
He reiterated arguments that making incentives performance-based, time-bound, targeted and transparent would, respectively, force firms to commit to job creation, sales and other targets; ensure that perks do not last indefinitely; reward industries that provide the most benefits to the economy; and ensure the public knows which firms are getting what perks.
Investments slowdown seen
On Saturday, senior officials of First Philippine Holdings Corp. (FPH) also expressed concerns of an investment slowdown.
“[W]ith the specter of the bill hanging over the industry’s head, we will see investments slow down,” FPH Executive Vice President Richard Tantoco said at the sidelines of a forum.
As passed, the Trabaho bill will cut the corporate income tax rate to 20 percent from the current 30 percent—said to be the highest in the region—by two percentage points every two years beginning 2021 up to 2029.
Opposition to the bill centers on the removal of incentives and FPH Chairman and CEO Federico Lopez said “people probably will wait and see whether [or not]these incentives [will be removed]because the impact of incentives being taken out is huge.”
“[The] tax burden could be up [to]10 times higher [than]what was put on the coal tax,” he added, referring to a levy approved under Trabaho’s predecessor, the Tax Reform for Acceleration and Inclusion (Train) law that was passed last December and took effect at the start of 2018.
Tantoco said that from the point of view of a power company—FPH’s major business involves power generation and distribution—removing incentives would derail a shift to renewable energy sources.
“If you remove the fiscal incentives, the impact on renewable energy is like you’re taxing it 10 times of coal, which is what we need to begin to transition out of,” he adde.
“It’s a major uncertainty because people are looking at their numbers and then they don’t know whether they’re gonna have an income tax of 10 percent or 30 percent.”
Locators at an FPH industrial park are shelving expansion plans given the uncertainties generated by the Trabaho bill, they claimed.
Last week, a Fitch Group unit said the House-approved measure was unlikely to lead to investment growth given the Philippines’ poor business environment.
“The proposal to lower corporate income tax rates is unlikely to result in a tangible boost to investment without an improvement to the business environment,” Fitch Solutions Macro Research said in a September 20 report.
On a positive note, it said the bill’s impact on revenue collections would likely be “negligible” in the short term, with effects further down the road to be addressed by other pending CTRP packages.
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