DOF says CITIRA will create 1.5 million jobs

September 30, 2019

Finance Undersecretary Karl Kendrick Chua has challenged the Joint Foreign Chambers of the Philippines (JFC) to examine the proposed second package of the comprehensive tax reform program (CTRP), known as the Corporate Income Tax and Incentives Rationalization  Act or CITIRA bill, instead of prematurely fretting over imagined job losses. 

In a statement by the finance department on Monday, Chua said the tax reform plan will create 1.5 million jobs as he reiterated his call on the chambers’ leaders to back their claims about domestic jobs  that will be affected or lost once the CITIRA bill becomes law, by providing the names of the companies and the number of jobs to be affected in each company.

His statement was in reaction to the claims of John Forbes, representing the JFC in the Senate committee hearing last week, that the passage of the CITIRA bill will lead to the loss of jobs.

Forbes is senior adviser at the American Chamber of Commerce of the Philippines (AmCham), which is a JFC member-organization. 

“Our numbers are transparent. Companies will reasonably invest at least 50 percent of their additional money from the reduction of the corporate income tax rate (CIT) rate in growing their business. This will mean more jobs--a total of 1.5 million jobs actually.  Morever, the new menu of incentives for investors, as proposed in CITIRA, will also encourage job creation and upskilling,” said Chua.

“We hear them. We have been listening to them and asking them in almost every meeting for two years now to give us more details on what kinds of jobs they are referring to, in which industries, and in which areas of the country, so we can help.

''Secretary ( Ramon) Lopez of the Department of Trade and Industry (DTI), who chairs both PEZA (Philippine Economic Zone Authority) and BOI (Board of Investments), said that we are open to continue supporting footloose industries. So why won’t they give us more details on their claims? Their lack of transparency is a little bit suspicious; don’t you think,?” he added,

“I also challenge the members of the foreign chambers currently receiving incentives to consider and calculate for themselves what they stand to gain from CITIRA. We want to transform the incentive system to reward job creation, among other activities that are directly beneficial to the Filipino people.”

“For instance, the highly labor-intensive industries can avail of the superior incentives in the form of an additional 50 percent deduction on labor, under CITIRA. Some companies we have met claim that labor accounts for 60 percent of their revenues. So instead of deducting around 60 percent from revenues, they can deduct 90 percent, and reduce their taxable income. Under CITIRA, the firm gets a performance-based incentive that guarantees jobs,” said Chua.

“One more superior incentive is the additional 50-percent deduction on local purchases of inputs to link small and medium enterprises (SMEs) to the supply chain. This will further enable SMEs to grow and create jobs,” he added. 

He also added that under CITIRA, the one-stop shop functions of the investment promotion agencies (IPAs) like PEZA remain, "so there is nothing to be afraid of."

President Rodrigo Duterte reiterated in his 4th State of the Nation Address (SONA) last July his request for the Congress to pass Package 2 of the CTRP—the CITIRA bill—that aims to energize micro, small and medium enterprises (MSMEs) by gradually reducing the CIT rate from 30 percent to 20 percent.

In his SONA, Duterte said Package 2 would benefit MSMEs.

The bill also seeks to reform the country’s fiscal incentives system to make it performance-based, targeted, time-bound, and transparent.

Finance Secretary Carlos Dominguez III said the proposed CIT cut and rationalization of incentives will boost MSME growth because under the current corporate taxation system, a select group of 3,150 corporations registered under IPAs enjoy discounted effective CIT rates of 6 to 13 percent.

Small and medium-sized businesses, which employ a majority of Filipino workers, pay the regular tax rate of 30 percent, which is the highest in the region, Dominguez said.

The CITIRA bill was approved in the House of Representatives last Sept. 13 and is being deliberated at the committee level in the Senate. DMS