2nd tax reform package to settle fiscal perks issue

THE DEPARTMENT of Finance (DoF) is crafting a new fiscal incentives scheme that will attract specific “high-value” sectors as part of the second tax reform package which it plans to submit to Congress before yearend.

“We would like to have an incentives system that is targeted at the type of operations we want to have here,” Finance Secretary Carlos G. Dominguez III told reporters in a recent briefing.

“We want clean industries… We want industries that provide jobs that can be towards the higher end, high-value jobs.”

Current incentives handed out by investment promotion agencies include a five percent tax on gross income, as well as a 15% or 18% tax rate on corporate income in lieu of paying national and local taxes for 15 years.

Income tax holidays (ITH) may also be availed of in the first four years of operations of a qualified company or a new subsidiary.

A separate set of incentives is offered for specific industries such as tourism and car assembly, administered by the Tourism Infrastructure and Enterprise Zone Authority and the Department of Trade and Industry.

Mr. Dominguez said his department is still finalizing the details of the new incentives scheme which will form part of the second tax reform package, which will be accompanied by a reduction in the corporate income tax rate to 25% from 30% currently.

The Finance department has argued that some investors now enjoying incentives would have come in even without such come-on, while the Trade department has insisted that the country’s already relatively poor foreign direct investment haul will be eroded should current perks be whittled.

Finance Undersecretary Gil S. Beltran said the government foregoes about P60 billion annually due to ITH alone.

The DoF will use data collected under Republic Act No. 10708, or the Tax Incentives Management and Transparency Act, to determine whether firms with tax breaks deliver the promised benefits to the economy.

Mr. Dominguez added that the department expects Congress to approve the first tax reform package and have it signed by President Rodrigo R. Duterte before yearend, in time for enforcement in January 2018.

The first package — approved by the House of Representatives at the end of May and which now awaits Senate fiat — provides for lower personal income tax rates, against higher excise levies for fuel and cars, an excise tax on sugar-sweetened drinks, as well as fewer value-added tax exemptions. — M. L. T. Lopez