The Board of Investments (BOI) and the Department of Finance (DOF) are starting to chip away at the sticking points that will likely emerge in the efforts to harmonize fiscal incentives, which will be the main feature of the second tranche of President Duterte’s tax-reform program.
For instance, BOI Managing Head and Trade Undersecretary Ceferino S. Rodolfo said they are amenable to the DOF’s proposal to unify the preferential tax rate and base offered by investment-promotion agencies.
“What the DOF wants—and which I see value in—is harmonizing the special tax rate and base offered right now. Investment promotion agencies offer different rates after the income tax holiday: a special tax rate on either gross income earned [GIE] or special rates on net income. [We’re open] to just one rate and one base,” Rodolfo told the BusinessMirror.
Aside from synchronizing this incentive, Rodolfo said they are also open to talks on capping the special tax rate given to registered projects to a specific period.
Currently, the Philippine Economic Zone Authority (Peza), the second major investment promotion agency in the country is offering a perpetual 5-percent preferential tax rate based on GIE after the income-tax holiday period.
Regional/area operating headquarters of foreign entities are also given a preferential income-tax rate of 10 percent compared to the Philippine branch tax of 30 percent.
“As much as possible, we want to approximate the incentives relevant for companies. Not all companies have projects that are perpetual after all. So you look at the lifetime of a project and if they are currently enjoying the rate based on gross income earned, we’ll see what’s the equivalent rate and period in terms of net income. We’ll make it equitable,” he added.
The agencies are now discussing which base will be used, as well as the corresponding rate.
Rodolfo clarified that there should be a menu of other incentive tools to offset the effect of this harmonization, depending on the investors’ need, such as double deduction on particular expenses or net operating loss carry-over.
The Duterte administration’s second package of reforms focuses on corporate taxation and entails streamlining fiscal incentives to plug revenue leakage. The government intends to enact five tax packages before the midterm polls in 2019 so it can generate additional funds for its massive infrastructure program.
The DOF wants to scale back on incentives given to new projects. Revenue-depleting fiscal perks, the DOF said, must be “time-bound, focused, performance-based and transparent”. The agency intends to reduce corporate income tax in exchange for the rationalization of incentives.
In the second package, the DOF wants the GIE offered by investment promotion agencies replaced by a reduced corporate income-tax rate of 15 percent.