FOREIGN investors want the refiled version of the Tax Reform for Attracting Better and High- quality Opportunities (Trabaho) bill to cut corporate income tax (CIT) to 20 percent in five years and not in 2029, as originally proposed.
Leaders of various foreign chambers told the BusinessMirror the government has to cut CIT faster than earlier planned. They said the Philippines will be at a disadvantage among Southeast Asian economies if lawmakers, as advised by finance officials, push through with the gradual reduction until 2029.
Florian Gottein, executive director of the European Chamber of Commerce of the Philippines, argued it is “necessary” for the CIT cut to be completed in a span of five years.
Under the previous version of the Trabaho bill, the reduction in CIT will begin in 2021, dropping by 2 percentage points every two years to 20 percent by 2029. However, foreign investors said this is “too slow,” and suggested the reduction be made annually.
“We urge the government to start reducing CIT as quickly as possible over the next five years to 20 percent so as to dispel any uncertainties on the country’s fiscal regime and make the business landscape more attractive and competitive in order not to lose out to our Asean peers,” Gottein said.
The Philippines imposes the highest CIT in the region at 30 percent.
Singapore applies the lowest at 17 percent, while manufacturing rivals Vietnam, Thailand and Indonesia collect 20 percent, 20 percent and 25 percent, respectively, of a firm’s taxable income.
“The issue is that [we] need to be first. Second place is not enough because there could only be one investment in the region for certain companies, so they will go to the one who is first [place]. It is very important that we have a good setup here,” Martin Henkelmann, executive director of the German-Philippine Chamber of Commerce and Industry, said in an interview with reporters last week.
Germany is one of the country’s largest sources of European investments. However, last year’s investments from Germany declined more than half to P541.28 million, from P1.38 billion in 2017, according to government data.
“We hope [the government] would reduce the corporate income tax faster and with shorter delays,” Henkelmann said.
Spanish Chamber of Commerce in the Philippines Executive Director Barbara Apraiz agreed with Gottein and Henkelmann, saying the corporate tax cut should be expedited so that the Philippines could attract larger investments. This, in turn, will create jobs and spur growth to the regions, which is in line with the government’s economic thrust of decentralizing wealth and opportunities.
“If we want to increase the trabaho [jobs] of the population, 10 years [of CIT reduction] is just too long, [as] we need to be competitive with the other countries,” Apraiz argued.
However, faster reduction of the CIT rate should not be at the expense of tax incentives provided to economic zone firms. Business leaders warned the government’s plan to rationalize incentives could erode the country’s competitiveness in the face of better tax perks offered by regional counterparts.
“On the other side, we have to see that we got a competitive regime and rules setup for the incentives,” Henkelmann said.
The Trabaho bill was passed by the House of Representatives last year. Finance officials, however, had a hard time sailing the measure across the Senate, as lawmakers feared it could result in investment losses.
Economic zone firms, mostly multinationals, warned they will most likely relocate to another Southeast Asian country if the government removes their current incentives, particularly the 5-percent tax on gross income in lieu of all local and national taxes.