THE House of Representatives is now open to accepting the Senate’s version of the proposed Corporate Income Tax and Incentives Rationalization Act (Citira) for as long as it is “fiscally reasonable.”
House Committee on Ways and Means Chairman Joey Sarte Salceda on Wednesday made an aide memoire addressed to the leadership of the lower chamber as the Senate started its plenary deliberations on the Citira bill.
“The interest of the House was speed, and many analysts claim that speed is now the paramount consideration in Citira. In the interest of a speedy passage of Citira, the House may accept a Senate version of Citira that is fiscally acceptable, to avoid the uncertainty and policy distortions that a bicameral conference can sometimes cause, and to end the long and repetitive discussions once and for all,” said Salceda. However, he said his committee will object to a Senate version that retains the grant of tax incentives in perpetuity.
“When an activity can be granted a tax incentive forever, the firm no longer has any incentive to improve performance or innovate.”
“No abusive transfer pricing. The House panel shall also object to any provision that makes it easier for firms to avoid paying their fair share of taxes by unduly shifting costs from one activity to another,” he added.
FIRB expansion
While the House panel recognizes that exact revenue neutrality may be difficult if not impossible to achieve, Salceda said the House shall object to a version of Citira that “unduly compromises fiscal stability and risks the country’s credit rating.”
Salceda said the House also stands pat on its position to expand the Fiscal Incentives Review Board. “No FIRB makes the reform meaningless. The power of the State to allocate public resources according to its priorities is the very heart of the reform.”
Also, he said lawmakers are willing to set aside local concerns for the national interest, as what they have done during the first round of sin taxes under Republic Act (RA) 11346, on tobacco, when the House adopted the Senate version during the Congress.
Salceda said both the Senate Bill 1357 and the House Bill 4157 aim to make incentives performance-based, targeted, time-bound, and transparent. He said both bills will instill more accountability in the grant of incentives, by expanding the FIRB to cover registered business enterprises that receive incentives from investment promotion agencies.
“More importantly, both versions will, once and for all, put an end to ‘forever’ in our incentives system. Incentives will no longer be granted in perpetuity,” he said.
Fast-track approval
The Senate on Wednesday was asked to speed up the passage of the Citira bill, which seeks to reduce the Philippines’s corporate income tax (CIT) rate currently listed among the highest in the Asean region.
Its principal sponsor, Senate Ways and Means Committee Chairman Sen. Pia Cayetano says early enactment of SB 1357 would pave the way to “reform the fiscal incentives system to make it more fair, efficient, and accountable.”
The bill provides that the country’s CIT rate will be gradually lowered by 1 percent every year, from 30 percent to 20 percent by 2030.
Cayetano added the remedial legislation will also “rationalize fiscal incentives given to firms to make these “performance-based, time-bound, targeted, and transparent.”
She said the bill also intends to prioritize incentives to business activities that generate domestic employment; promote research, development and innovation; promote agribusiness; and invest in areas that are less developed or are recovering from disasters and conflicts.
“Citira shall, likewise, offer additional tax deductions to reward corporations’ good behavior, such as local job creation, exports, and investment in high technology,” the Senator added.
SB 1357 proposes to “implement sunset provisions” for firms currently enjoying fiscal incentives to help them transition to the new tax regime under Citira.
Cayetano said that “after listening to the concerns and apprehensions of existing investor groups that will be affected by this bill, we [lawmakers] came up with terms that address their request for a smoother transition period.”
She clarified that the revenue reform measure also allows the Philippine President to grant incentives for a longer period of up to 40 years for “highly desirable” projects, as long as they will primarily benefit the Filipino public.
Dominguez optimistic
Finance Secretary Carlos G. Dominguez said he is still optimistic that Citira will be passed before Congress goes on a break from March 14 to May 3.
Asked on its impact on investor confidence if the Citira bill is not passed before the break, he told reporters: “You know put [forward] this idea three years ago, another seven weeks won’t matter, it will but it’s not that serious but I hope they can really finish it by March 13.”
Cayetano said she cannot say if the Senate will be able to pass it before the break.
“All I can say is I am available to clarify issues, and if we schedule this regularly, we could have a good chance of passing, we do have a good chance. I do know that there are issues. That’s why I said I will make myself available so I can respond to those issues,” she told reporters in an interview.
Finance Undersecretary Karl Kendrick Chua earlier said investors are apprehensive over the length of time it has taken Congress to act on the revenue reform measure.
The Bangko Sentral ng Pilipinas earlier reported that the foreign direct investment (FDI) figures in January to November 2019 remained in the red despite the uptick recorded in November.
FDI that flowed into the Philippines hit $6.41 billion in the 11-month period in 2019, down by an annualized rate of 29.9 percent.
FDI are the type of investments that are often more coveted as these stay longer in the economy and create job opportunities for locals.
However, Dominguez said FDI in other parts of the world were also affected by the trade war between the United States and China.
Butch Fernandez & Jovee Marie N. dela Cruz
With Bernadette D. Nicolas