BUSINESS leaders are amenable to shelving the passage of the second fiscal reform bill until the next Congress, but said the reduction of corporate income tax (CIT) to 20 percent must be completed by 2024.
In interviews with the BusinessMirror, onshore and offshore investors conceded it will be a Herculean task to hurdle the proposed Tax Reform for Attracting Better and High-quality Opportunities bill past the Senate under the 17th Congress. The measure, called the Trabaho bill, could be put aside by legislators, as a number of them will need to focus on their campaign for reelection. Business leaders said they approve of delaying the passage of the Trabaho bill—even up until the 18th Congress—as long as enhancements are introduced in the measure.
George T. Barcelon, chairman of the Philippine Chamber of Commerce and Industry (PCCI), wants the next set of legislators to hasten the reduction of CIT to five years from the proposed 10 years. If this proposal is heeded, CIT in the Philippines should be at 20 percent as early as 2024, not 2029, as provided under the Trabaho bill.
“This [current version of the Trabaho bill] is supposed to be 10 years of reduction, [but we hope] when they [lawmakers] pick it up again, maybe they can accelerate the reduction and shorten the period in parity with other [Southeast Asian] countries,” Barcelon said.
He argued this is crucial if the government intends to put the country on a par with the tax and incentives regime of its Southeast Asian competitors. Firms in the Philippines pay the highest corporate tax in the region at 30 percent.
“Ten years [of CIT reduction] seems to be too long because the other [Southeast Asian] countries are making headway,” Barcelon added.
Citing the recommendation of his group, American Chamber of Commerce of the Philippines Senior Advisor John D. Forbes said elected lawmakers of the next Congress should revamp the Trabaho bill. The CIT should be trimmed upon passage of the measure to 25 percent, and gradually down to 20 percent over the next five years, he asserted.
Forbes also said legislators should redesign the Trabaho bill in such a way that it eliminates the risk of economic zone firms downsizing or leaving the country due to the overhaul of tax incentives.
“As with other important reform bills that have not been
approved by the 17th Congress, the risk of delay [in passing the Trabaho bill]
is slower improvement of the investment climate and the economy. When the 18th
Congress convenes, there will be time to pass the Trabaho bill—hopefully, with
enhancements being discussed
between the DOF [Department of Finance] and BOI [Board of Investments],” Forbes
said.
“Our recommendation is to reduce the CIT to 25 percent quickly and then gradually to 20 percent, so that 20 percent is reached over five years,” he added.
Euro firms agree
European firms are also in favor of a faster reduction of CIT, according to the European Chamber of Commerce of the Philippines (ECCP).
ECCP Executive Director Florian Gottein insisted, however, that the Trabaho bill be approved within the 17th Congress.
“Further delays in the passage of the Trabaho bill will prolong investors’ uncertainty in the Philippine market, [and] this may affect the competitiveness of the country both regionally and worldwide,” Gottein argued.
“Furthermore, we believe that the CIT reduction should be implemented as soon as possible—shorter than the 10-year timeframe that is provided under the current proposal. We, however, [maintain] that the passage of the Trabaho bill should be done immediately to address investors’ concern,” he also said.
The Trabaho bill will, on one hand, gradually lower CIT to 20 percent in 2029 from 30 percent, and will rationalize tax perks for locators on the other.
The measure was approved by the House of Representatives in September of last year, but has yet to make significant progress in the Senate. Senators have yet to deliberate on the bill again, as they are too occupied with approving the national budget for this year.
This, coupled with the upcoming elections that are expected to take up the time and attention of lawmakers, compelled Trade Secretary Ramon M. Lopez to concede it will be difficult to pass the Trabaho bill under the 17th Congress.
“Frankly, it looks unclear now. And if [the measure is] rushed, they might not be able to consider all the fine-tuning of provisions, and end up with a not-so-good law,” Lopez told the BusinessMirror.
Legislators resumed session on January 14, and will go on break again on February 8 to make way for the midterm polls.
The 17th Congress will then commence session for the last time on May 20. Sine die adjournment begins on June 8.