Finance Department submits second tax reform package to Congress

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Metro Manila (CNN Philippines, January 17) — The Department of Finance (DOF) formally submitted to Congress on Monday the second package of the administration's Comprehensive Tax Reform Program (CTRP).

The package seeks to reduce corporate income tax (CIT) rates and modernize fiscal incentives to investors.

Under the proposed package, CIT will be gradually reduced from 30 percent to 25 percent.

It will also modernize incentives for companies to make these "performance-based, targeted, time-bound, and transparent," Finance Undersecretary Karl Kendrick Chua said.

Chua said the second package will grant businesses incentives that would help them generate jobs, improve the economy in the countryside, as well as ensure tax perks do not go on forever.

The incentives would also be reported to the government so the costs and benefits can be determined.

He said incentives enjoyed mostly by big businesses, like income tax holidays and other perks with no time limits, must be corrected as these are costing the government over ₱300 billion annually in foregone revenues.

Read: DOF: ₱300 billion lost due to tax holidays, incentives

Citing 2015 data, Chua said income tax holidays and special rates account for ₱86.25 billion of the revenue losses, while custom duty exemptions account for ₱18.4 billion.

Chua added that exemptions from paying value added tax (VAT) on imports led to ₱159.82 billion in foregone revenues, while exemptions from paying local VAT account for ₱36.96 billion.

Inefficient collection

Compared to other members of the Association of Southeast Asian Nations, the DOF said the Philippines has a high rate of CIT — 30 percent — but collection efficiency remains low at 12.3 percent.

Chua said the country's flawed and outdated system is why corporate income tax collection remains inefficient.

In comparison, the DOF said Thailand's CIT rate is only 20 percent, but has a 30.5-percent collection efficiency rate. 

Meanwhile, Vietnam's CIT rate is 25 percent, but has 29.2 percent collection efficiency rate. In Malaysia, the CIT rate is only 24 percent, but the country has a 27.1-percent collection efficiency rate.

Package 1 of the CTRP was signed into law by President Duterte on Dec. 19.

It slashed personal income tax rates while raising additional revenues for infrastructure and social services.

It also repealed several non-essential exemptions to VAT, adjusted the excise tax rates for fuel, coal and automobiles and imposed a higher tax on sugar-sweetened beverages, among other measures.