Despite the expected cut in corporate income tax (CIT) under the proposed Corporate Income Tax and Incentives Rationalization Act (Citira), the Economist Intelligence Unit (EIU) said this will not widen the shortfall in actual tax collection.
While the Citira faces opposition from businesses lobbying for the retention of fiscal incentives, the EIU said in an article that the measure will be passed by Congress this year, putting the country “on track” to cutting CIT to 20 percent by 2030.
However, the EIU said the extent by which the measure will lower the effective tax rate companies pay and its impact on arresting falling foreign direct investment will still depend on the final outcome of the bicameral review of Senate and the House of Representatives.
“While the government will find it hard to achieve its ambitious revenue target, the shortfall in actual collection will not be wide, considering that the pace of reduction in the corporate income tax rate is much slower than at which incentives are supposed to be rolled back,” EIU said in the January 14 article, titled “Crunch time for Duterte’s corporate tax reform.”
Citira aims to lower the CIT rate from 30 percent to 20 percent over 10 years to bring it closer to the Asean average while redesigning the current convoluted fiscal incentives system to make it performance-based, time-bound, specifically targeted and more transparent.
The EIU noted that corporate tax reforms under President Duterte comes at a time that the government needs to increase tax revenues to fund his commitments to raise social spending and disbursements for infrastructure.
In a statement on Wednesday, the Department of Finance said the House version of the Citira bill, which was approved on September 13, 2019, has already been transmitted to the Senate on September 16.
The measure is now pending in the counterpart Senate panel chaired by the equally hardworking Sen. Pia Cayetano, the DOF said.
Finance Secretary Carlos G. Dominguez III reiterated in the same statement that the tax reform will attract more investments and help propel the country to an “A” credit rating from its current “BBB plus” while creating “a better level playing field” for businesses, as well as entice new players to come in and compete.
Aside from Citira, the other pending packages under the Comprehensive Tax Reform Program (CTRP) include Package 3 or the Real Property Valuation Reform and Package 4 or the Passive Income and Financial Intermediary Taxation Act or PIFITA.
Nonetheless, Dominguez has since expressed confidence that the pending CTRP packages will be approved by Congress this year.
“Completing the reform measures will guarantee the revenue flow and the equitable sharing of the contributions to underwrite our social and infrastructure programs. It will also ensure fiscal stability long into the future,” he said.
The bill imposing higher excise taxes on alcohol products and an increase in the tax rate for e-cigarettes, such as heated tobacco products and vapor products was approved by Congress and is now awaiting President Duterte’s signature.
In July last year, President Duterte also signed into law Republic Act 11346, which raised the excise tax on tobacco products to P45 per pack beginning in 2020, followed by a series of P5 per pack increases until the rate reaches P60 in 2023. Thereafter, the tax rate will increase by 5 percent every year.
It also included a provision taxing e-cigarettes by at least P10 per milliliter for e-juices with high nicotine concentrations, also known as nicotine salt. Under the bill up for the President’s signature, this minimal rate has since increased to be closer to that of cigarettes based on comparative consumption patterns.
Image credits: Nonie Reyes