INCENTIVES RATIONALIZATION

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Antonio Joselito G. Lambino II

Assistant Secretary Department of Finance

CORPORATE INCOME TAX AND INCENTIVES RATIONALIZATION

Dispelling the Myths

Consultative briefing with locators Fontana Hotel, Clark City

November 18, 2019

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Vision for the Philippines

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Poverty reduction is encouraging.

28.6 27.9

26.3 27.6

21.0

15.0 14.0

12 16 20 24 28 32

Pov erty ra te (p er cen t)

First semester poverty estimates among the population

2006 basket based series 2012 basket based series

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Infrastructure spending

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Rice liberalization is…

pro-consumer pro-farmer

pro-taxpayer pro-workers pro-children pro-poor

Photo: IRRI

Rice liberalization reform is a game-changer .

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Human capital development

These are some of the specific benefits that

Filipinos will receive under UHC if fully implemented.

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Some economic priorities in next three years

1. Accelerate implementation of the Build Build Build infrastructure program.

2. Pursue economic reforms to increase FDI and jobs. Priority bills include Public Service Act amendment, Retail Trade Liberalization Act amendment, and Foreign Investment Act amendment.

3. Improve implementation of existing reforms such as Ease of Doing Business, National ID, etc.

4. Improve the productivity of agriculture, including distribution of individual titles to land reform beneficiaries.

5. Pursue the remaining tax reform packages to make the tax system simpler, fairer, and

more efficient

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Key objectives of the

Comprehensive Tax Reform

are to make taxation

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Tax reform

Impact on Taxpayer’s

Personal Income

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Among our economic priorities is the passage of the remaining tax reform packages

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Package 2

Corporate income tax and incentives reform

Package 3

Property valuation Package 2+

Alcohol and e-cigarette excise

Package 4

Passive income

and financial taxes

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MYTH #1

Package 2 is anti-incentives

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Fair and accountable tax incentives system

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Every peso granted as tax incentive is a peso off the budget that could have been spent for infrastructure, health, education, and

social protection that benefit all, and not only a few.

Package 2

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In 2017, over PHP 441 billion (2.8% of GDP) was granted to 3,150 firms.

PHP 441 billion in foregone revenues in 2017 from tax incentives, some of which might be unnecessary

1. Firms with no incentives pay the regular rate of 30% of net taxable income.

2. For example, almost all of the

90,000 SMEs pay the regular 30%

rate.

3. Firms with incentives pay between 6% and 13% effective tax.

In 2017, 989,166 registered firms, most of which pay the regular tax rate.

In addition, PHP 63 billion (0.4% of GDP) was lost due to possible

abuse of transfer pricing.

Total: PHP 504 billion

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a. This cannot be availed together with the ITH, among other conditions. The additional deduction shall be 100% if the activity is located in less developed areas. (Does not include TIEZA, SBMA, CDC, and APECO)

b. Additional deduction of 50% of the value of training expenses incurred may be deducted from the 5% final tax due (not to exceed the national governments share of 3%). (Does not include BOI, TIEZA, SBMA, CDC, APECO, PIA, and PRA)

c. The enterprise may deduct from taxable income an amount equivalent to 100% of necessary and major infrastructure works (infrastructure, public utilities, and other facilities, such as irrigation, drainage or other similar waterworks infrastructure) with the prior approval and provided that the title to all such infrastructure works shall upon completion, be transferred to the Philippine Government. (For BOI only)

activities

Direct labor expense Training expense

Domestic inputs purchased R&D costs

Depreciation allowance

Reinvestment allowance for manufacturing

Infrastructure development Net operating loss carry-over

Under status quo

Up to 150% deduction

^a

^b

Up to 100% deduction Up to 100% deduction

- -

^c

Carried over for the next 3 years

Under Package 2

Up to 150% deduction Up to 200% deduction Up to 150% deduction Up to 200% deduction

10% for buildings, 20% for machinery Up to 50% of reinvested profit

(within 5 years from time of reinvestment) Up to 200% deduction

Incurred during first 3 years

carried over next 5 years

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According to the Board of Investments, all industries currently receiving incentives will be part of the first

SIPP.

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MYTH #2

Package 2 exposes investors to unnecessary

red tape and harassment by government agencies

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All IPAs will retain their one-stop shop functions for investors

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and approve all incentives. The DOF secretary chairs the FIRB.

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MYTH #3

CITIRA will make

the Philippines uncompetitive.

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Source: Asian Development Bank and PWC

We have the highest corporate income tax rate in the region

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Reduction of the CIT rate will enhance competitiveness

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The incentive system is being improved to make sure that we can:

Image source:

flaticon.com

Innovate Improve our position in

global value chains Participate in more high-

value activities

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Government is hard at work to improve conditions for all businesses and ultimately, the Filipino

people.

Infrastructure Human capital Key legislation

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Our goal: a comfortable life for all Filipinos

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Let’s be partners for change!

@DOFPH

For more information, please visit:

@DOF_PH

taxreform.dof.gov.ph