1.4M jobs from tax reform

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Photo by Credit Suisse

The government’s tax reform package seeking to lower the corporate income tax (CIT) and overhaul the country’s convoluted fiscal incentives system is seen to generate some 1.4 million jobs, mostly in small and medium enterprises (SME), over the next decade and create a business environment conducive to inclusive growth, according to Finance Secretary Carlos Dominguez III.

Dominguez said at a business forum the proposed staggered cuts in the CIT from 30 to 20 percent over a 10-year period as provided under the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill will energize hundreds of thousands of SME and encourage them to use part of their saving from lower tax payments to expand their businesses and hire more workers.

He called on the captains of Philippine business gathered at the Wallace Business Forum Roundtable to thoroughly study the CIT reform proposal in its entirety, including “the more controversial component” on the rationalization of fiscal incentives, as he expressed the hope they would “come to the same conclusion we did: that the reforms will be beneficial to our domestic economy.”

“We urge the business community to thoroughly read the measure, rather than base their positions on hearsay and opinions of uninformed people, so that you can work with the government in explaining the true benefits of the TRABAHO bill to the public,” Dominguez said at the event organized by businessman Peter Wallace on Thursday at the Makati Shangri-La Hotel.

Dominguez said the plan is not the elimination of incentives for investors but to improve them by offering a better set of perks that includes the following: 50 percent deduction on incremental labor costs; 100 percent deduction on training, research and development; and 50 percent deduction on purchases of local raw materials.

The incentives under Package 2 will be transparent, time-bound, targeted and performance-based, Dominguez said, to, among others, help eliminate corruption and cronyism and “spare Filipino taxpayers from subsidizing the profits earned by a select group of corporations enjoying redundant incentives in a convoluted system.”

The proposed CIT cuts and reforms in the fiscal incentives system constitute Package 2 of the government’s comprehensive tax reform program (CTRP).

The Package 2 version of the House of Representatives — the TRABAHO bill — was approved by the Chamber last September, while the counterpart version of the Senate — SB 1906 or the Corporate Income Tax and Incentives Reform Act authored by Senate President Vicente Sotto III — is still being studied by the chamber’s ways and means committee.

He noted the reforms pursued thus far by the government, including improvements in the ease of doing business, helped raise net foreign direct investment (FDI) inflows by 31 percent to $7.4 billion in the first eight months of the year, from $5.7 billion in the same period last year.

Apart from deepening investor confidence, Dominguez said the FDI surge proves that investors are not being spooked by tax reform, as claimed by certain groups.

While FDI are dramatically increasing, the Philippine Economic Zone Authority has claimed a slowdown in investments in areas under its jurisdiction, which, Dominguez said, “can only mean they are trying to attract investments that cannot be viable without unreasonable incentives.”

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