THE Department of Finance (DOF) said on Wednesday it is now open to slashing the corporate income tax (CIT) rate at a much faster pace compared with what it was originally pushing for under the Corporate Income Tax and Incentives Rationalization Act (Citira).
The BusinessMirror learned from a reliable government source that the DOF is now looking to reduce the 30-percent current CIT rate—which has been the highest in Southeast Asia—to 25 percent on the first year of implementation due to the Covid-19 impact.
This comes as the government looks for ways to raise more funds and cushion the economic impact of the pandemic on businesses as well as the vulnerable sectors of the society.
In a press conference following the turnover of the P228.45-million cash donation of the Philippine National Police on Wednesday, Finance Secretary Carlos G. Dominguez III for the first time categorically expressed openness to quickening the pace of reduction in the CIT rate.
“We are willing to look at it and most likely cut [the CIT rate] further more quickly than originally planned,” Dominguez said.
Pressed for more details on the likelihood of a quicker pace of reduction in CIT rate, Finance Assistant Secretary and spokesperson Tony Lambino referred the question to the lawmakers.
“[We] will follow the lead of our legislative champions on the announcement. It should happen soon,” Lambino said in a message to the BusinessMirror. “We will let our legislative champions announce the revised proposal.”
Former Finance Undersecretary and now Socioeconomic Planning Secretary Karl Kendrick Chua told the BusinessMirror he will “have to leave it to DOF to compute the rate we can afford while being responsive to the businesses affected.”
Prior to Covid-19’s outbreak, industry groups have said they wanted the CIT rate to be reduced to 25 percent on the first year of implementation to somewhat allow the Philippines to compete with the average of 22.5 percent in Asia and 23 percent globally; and that a 1-percent reduction be implemented yearly thereafter until it reaches 20 percent.
However, Dominguez said then that a faster CIT rate reduction would only swell the country’s budget deficit, which could lead to a credit downgrade.
Should the faster pace of a CIT rate reduction push through, this would be a huge step for DOF, coming from its initial position of just cutting the CIT rate to 29 percent on the first year of implementation. The Citira bill originally seeks to gradually reduce the CIT rate from the current 30 percent to 20 percent by 2029.
Last week, Dominguez pushed for Citira’s passage, arguing that the reduction in CIT rates that the bill provides would be a “good stimulus to the economy.”
He then expressed doubt that the proposed stimulus bill would be passed immediately, considering the length of time it takes to have all the hearings from the House to the Senate.
He also earlier said the DOF is studying whether to tweak the provisions of the pending Comprehensive Tax Reform Program, including Citira, as a form of Covid-19 relief.
Aside from the reduction in CIT rate, the Citira bill also seeks to overhaul the current menu of tax perks enjoyed by economic zone firms, including the 5-percent tax on gross income paid in lieu of all local and national taxes.
These incentives are what keep the Philippines competitive against Southeast Asian competitors in the face of high logistics and energy cost here, critics of the bill have said.
The Citira bill was passed by the House of Representatives last year and the Senate has yet to pass its version of the measure.
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.
With reports from Cai Ordinario