FINANCE Secretary Carlos G. Dominguez III wants the Corporate Income Tax and Incentives Rationalization Act (Citira) to be passed before Congress adjourns on June 3 in a bid to attract investors who want to relocate from other countries.
The country’s finance chief said they have proposed including “flexible tax and nontax incentives” under the bill to target specific companies that the government wants to invest in the country.
“To attract investors who want to relocate from other countries and in search of resilient high-growth potential economies like the Philippines, this will involve the urgent passage of Citira or Package 2 of the Comprehensive Tax Reform Program, which we now proposed to include flexible tax and nontax incentives so we can target specific companies that we want to invest here. The bill has been with the Senate for a few months. We would like to ask for your support so that Congress can pass this before June 3,” Dominguez said during a televised briefing of the May 11 Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF).
Pressed to elaborate on flexible and nontax incentives, Dominguez told finance reporters on Tuesday they are exploring the proposal that the President, upon the recommendation of the Fiscal Incentives Review Board, grant a mix of incentives that will suit investors’ unique needs.
“Under the original Citira proposal, the President can extend the duration of incentives upon the recommendation of the Fiscal Incentives Review Board. Enhancements under a more Covid-19-responsive version of the bill could include the power of the President, upon recommendation of the FIRB, to grant a mix of incentives that better suit an investor’s unique needs. We are already exploring this proposal with relevant committees and leaders of Congress. That would make the system more responsive to investments that will serve our people well,” he said.
Flexibility, he said, refers to mechanisms that allow the government to tailor-fit incentives—fiscal and non-fiscal—to specific investors whose relocation to the Philippines can yield significant economic returns for the country.
“Benefits would include good jobs for our workers and co-location of key players in cutting-edge industries,” he said.
Dominguez argued that the country’s menu of incentives “should not be a one-size-fits-all approach,” noting that “there are potential investments that are uniquely deserving of incentives for reasons that serve the public interest, but their needs do not fit the kind of incentives specified in our laws.”
“One of the structural problems of our current system is the limited room for the kind of negotiations that our neighbors are having to attract potential investors,” he said.
Faster CIT rate cut
Dominguez said last week they are open to reducing the corporate income tax (CIT) rate at a much faster pace than what was originally planned under the Citira bill.
The BusinessMirror learned from a reliable source last week that the DOF is considering reduction of the 30 percent current CIT rate—the highest in Southeast Asia—to 25 percent on the first year of implementation due to Covid-19 impact.
This comes as the government looks for ways to raise more funds and cushion the pandemic’s economic impact on businesses as well as the vulnerable sectors of society.
Before Covid-19, industry groups had said they wanted the CIT rate to be reduced to 25 percent on the first year of implementation to somehow 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 had said then that a faster CIT rate reduction would swell the country’s budget deficit, which could lead to a credit downgrade. Should the faster pace of 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.
Aside cutting the CIT rate, the Citira bill will overhaul the current menu of tax perks for 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.
Image credits: AP/Wong Maye-E
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