Second TRAIN package to focus on businesses

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Metro Manila (CNN Philippines, January 24) - Businesses are the next item in the Duterte administration's tax reform agenda.

Similar to the first package, the second bill of the Tax Reform for Acceleration and Inclusion (TRAIN) proposes to cut corporate income taxes, but this should correspond with lower tax incentives.

"Our plan is to initially lower the tax rate for corporations from 30% to 25%. But our proposal to Congress is to allow us to do that only if there is a reduction in the amount that we provide for incentives," Finance Secretary Sonny Dominguez said on Tuesday.

The Department of Finance filed the second TRAIN bill with Congress last January 15. Lawmakers hope to pass it within the year.

Dominguez said far too many companies currently enjoy tax cuts.

There are 333 laws and 14 government agencies giving incentives for companies, he pointed out. In 2015 alone, the government waived a total of P301 billion in corporate taxes.

TRAIN 2, however, comes at a time when the services sector, especially business process outsourcing (BPO), is slowing down.

Socioeconomic Planning Secretary Ernesto Pernia on Tuesday said the BPO industry was a "major contributing factor to (the) decline" of the Philippine economy in 2017.

Related: Philippine economy grows by 6.7 percent in 2017

According to the Finance department, BPOs are the second biggest recipient of tax perks. But many BPO companies argued they need these perks to compete abroad.

Dominguez refuted this argument.

"They are already getting special consideration at the moment. Aren't they? They only pay 5 percent on net income. Isn't that special consideration? We will have to review that," he said.

He said tax perks must be given only to the most important sectors. The Finance chief said there should be transparency on how it is used and it should be time bound.

"Some guys have been receiving incentives for 40 years... Shouldn't people grow up and compete with the rest of the world?" he said.

Dominguez said they will retain tax incentives, but they need to make sure the country gets something in return.

There's more tax reform to come. At the end of the month, the Finance department will file TRAIN 2+, updating taxes on tobacco, alcohol, mining and gambling. TRAIN 3 will be submitted by the end 2018, covering property taxes. To be submitted in 2019 is TRAIN 4, which covers taxes on investments.