House passes second part of tax reform bill

September 10, 2018

The House of Representatives, voting 187 for and 14 against with three absentions, on Monday approved  on third and final reading the  “Tax Reform for Attracting Better and High-Quality Opportunities” (TRABAHO) bill, formerly the Tax Reform for Acceleration and Inclusion (TRAIN) II.

The bill seeks to encourage investments by lowering corporate income tax rate from 30 percent to 20 percent and modernize investment tax incentives to enhance fairness, improve competitiveness, plug tax leakages and attain fiscal sustainability.

Its principal author is House committee on ways and means chairman and Quirino Rep. Dax Cua.

Cua and co-author,  Nueva Ecija Rep. Estrellita Suansing,  sponsored the bill.

The bill seeks to reduce the current 30 percent corporate income tax rate per two years to  28 percent in 2021 to 20 percent in 2029.

It also proposes to grant fiscal incentives to registered activities of exporters and industries listed in the Strategic Investments Priority Plan.

It provides subsidies through school and housing vouchers, as well as allocate funding for universal health care from incremental revenue. It has a structural adjustment fund for displaced workers.

Cua said the TRABAHO bill will impose additional tax on consumer goods.

Cua said lowering the corporate income tax will provide relief to small and medium enterprises which represent about 95 percent of all corporate taxpayers.

Suansing said the Philippines, despite having the highest corporate tax in ASEAN at 30 percent. has a low tax collection efficiency.

“This is because the tax base is seriously eroded by a system which provides for very generous tax incentives for both foreign and domestic investments in the Philippines, and consequently, the rate of job creation, as well as export performance have not increased significantly and are much lower than those of our ASEAN neighbors,” said Suansing.

Suansing said in 2015, she said the Department of Finance (DOF) estimated the investment tax incentive system cost the government around P301 billion in foregone income tax, value added tax and customs duties, not including local taxes and leakages.

“This amount translates to more than two percent of the country’s Gross Domestic Product,” said Suansing.

Suansing said a cost-benefit analysis by the DOF showed on the average, there is no difference between the performance of firms receiving tax incentives and firms not receiving incentives in terms of employment, exports, investments and productivity.

“The bill seeks to correct this by making the incentives system “performance-based” – to one that provides incentives only, to deserving recipients who will directly contribute to national development, research and innovation, and to the generation of jobs and investments, especially in less developed areas of the country and those recovering from armed conflict or major disasters,” said Suansing. DMS