IF the Philippines wants to snatch investments flowing into its Southeast Asian rivals, then the government has to trim corporate tax rate to 25 percent on the first year of implementation of the Corporate Income Tax and Incentives Rationalization Act (Citira) bill, according to industry groups.
In a position paper, industries aired their concern on the tax reduction schedule laid out under Senate Bill 1357, or the Citira bill. They argued that the proposal to lower corporate income tax (CIT) rate by 2 percent every two years until 2029 will fail in achieving the government’s objective of luring investments into the Philippines.
There’s an anomaly with this statement, however, as SB 1357 proposes a reduction schedule of 1 percent annually effective January 1, 2020—either way, the country’s CIT rate will land at 20 percent by 2029.
“We believe that the proposed reduction of corporate income tax of 2 percentage points every two years, which will only begin to take effect in 2020, is too little, too slow. The Philippines has long suffered from high corporate tax rates, which has proven to be ineffective compared to the experience of our Asean neighbors,” the industry groups said.
They proposed that the CIT rate be trimmed to 25 percent on the first year of implementation of the Citira bill to somewhat allow the Philippines to compete with the average of 22.5 percent in Asia and 23 percent globally; and that 1 percent reduction be implemented yearly thereafter until it reaches 20 percent.
“Thus, it is a no-brainer for investors considering Southeast Asia as an investment destination not to pick the Philippines, given that we have the highest CIT rate, highest cost of power and less than desirable state of infrastructure, among others. No wonder the Philippines is receiving the least amount of FDI almost every year among major Asean economies,” they added.
Further, the industry groups asked to extend the period by which investors can keep on paying 5-percent tax on gross income earned to 10 years, from seven years as filed in SB 1357, for as long as they are exporting 100 percent of their goods and services, employing at least 10,000 workers or doing footloose projects and activities.
Fund for IT-BPO
They also said that SB 1357 should adopt the P5-billion structural adjustment fund to support the information technology and business- process outsourcing (IT-BPO) industry. Inserted in the House version of the Citira bill, the fund can be used by firms for trainings to graduate IT-BPO workers from standard voice calls to higher value-added services, they explained.
The industry groups demanded that the Philippine Economic Zone Authority (Peza) be allowed to keep its power to process and approve applications for registration of projects and activities.
Introducing these revisions to SB 1357, the industry groups claimed, will make the Philippines competitive at a time the global economy is challenged by the coronavirus outbreak and trade conflicts. The spread of the coronavirus across countries, for one, is now felt by the economy, as manufacturers whose supplies come from China begin to reduce output, they said.
These events are resulting in the transfer of multinational firms, mostly in manufacturing, from China to Southeast Asia, but the Philippines is apparently not benefiting from these relocations on uncertainties brought about by the Citira bill.
For instance, investments registered with the Peza last year declined 16.18 percent to P117.54 billion, from P140.24 billion in 2018. In particular, capital applied by foreign investors fell nearly 28 percent to P49.25 billion, from P68.32 billon, while those from local firms slipped more than 5 percent to P68.28 billion, from P71.91 billion.
The position paper was crafted by the Joint Foreign Chambers of the Philippines, Information Technology and Business Process Association of the Philippines, and the Semiconductor and Electronics Industries in the Philippines Foundation Inc.
It was submitted last week to Sen. Pia S. Cayetano, who chairs the Committee on Ways and Means. The Citira bill was passed by the House of Representatives last year, and senators will try to approve their version this week before heading into recess.
The Philippines lost at least $12 billion worth of investments over the past two years due to the prolonged deliberation on the Citira bill, according to Albay Rep. Joey S. Salceda.