THERE may be no need for a bicameral conference committee if the Senate passes a “fiscally sound” version of the Corporate Income Tax and Incentives Rationalization Act (CITIRA), according to House Ways and Means Chair and Albay Rep. Jose Maria Clemente S. Salceda.
“As long as the Senate’s final output is fiscally vetted, and without weird additions that threaten our financial position, we can go without a bicameral conference. We are confident that the House submitted a very reasonable and very sound first draft. As long as they don’t compromise the overall fiscal health of the country,” Mr. Salceda said in a statement on Wednesday.
The CITIRA bill, which is now renamed as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), is still pending second reading approval at the Senate. Lawmakers are now scrambling to come up with a final version before Congress goes on recess on June 5.
Under CREATE, the corporate income tax (CIT) will be slashed to 25% in July, from the current 30%. The version approved by the House last year had sought to reduce the CIT to 20% over a decade.
“I broadly agree with the amendments. Actually, I proposed that we cut CIT faster to help COVID (coronavirus disease 2019) afflicted businesses even before the changes were made. So, with that critical input considered, it fits what I believe should be the tax policy counterpart of the economic recovery plan,” Mr. Salceda said.
If passed, the measure will save small businesses an estimated P42 billion.
“It’s P42 billion more money in hundreds of thousands of small businesses — wala pang delay sa implementation, kasi instant ang epekto sa bottomline. The cut is effective July 2020, if the Senate can manage to pass it before we go on break this June,” Mr. Salceda said.
CREATE also proposed to extend the net operating loss carry-over (NOLCO) to five years from the current three-year period. This will allow firms to utilize net losses in 2020 as additional deductions to their taxable income from 2021 to 2025.
The Fiscal Incentives Review Board (FIRB), whose functions will be expanded under the bill, will also have the power to recommend the grant of longer tax incentives and non-fiscal incentives to deserving companies.
Upon the recommendation of the FIRB, the President can approve a set of incentives with longer periods of availment if necessary to attract “highly desirable investments that will bring more employment, high level of skills training, and greater value-added to the economy.”
Mr. Salceda is confident that the proposed tax reform can be passed immediately as long as the net revenue impact “makes sense.”
“Pia naman and I have an open line, as well as the economic managers. So, the small details can be ironed out and the House will continue to provide insights. But, if the net revenue impact makes sense, we can adopt the Senate version. Kung ipasa nila bukas, bukas tapos na tayo,” Mr. Salceda said referring to Senate Ways and Means Chair Pia S. Cayetano.
CREATE is part of the recovery stage under the Philippine Program for Recovery with Equity (PH-Progreso).
STATUS QUO INCENTIVES
The Philippine Economic Zone Authority (PEZA) continues to support the “status quo” on incentives, despite the new proposals to immediately cut corporate income tax and lengthen the sunset period for existing fiscal incentives.
“We’ll leave it to the senators (because) they’re the ones who will vote,” PEZA Director-General Charito B. Plaza said about the new proposals in a mobile phone message on Wednesday.
The CITIRA also proposes to rationalize incentives, where companies can retain their existing incentives for four to nine years. The sunset provision was at two to seven years.
Ms. Plaza maintained in a television interview on Wednesday that export companies prefer to retain the existing incentives regime.
“Our incentives package is exactly what attracted our FDIs (foreign direct investments), our exporters to come to the country. Our incentives package is tried, tested, and proven and is globally competitive.”
She said in the mobile phone message that PEZA supports the reduction of the CIT for domestic enterprises.
“Exporters still prefer the GIE (gross income earned) (because) it’s simplified and they don’t have to deal with the LGU (local government unit), BoC (Bureau of Customs) and many other agencies thus, open to red tape and corruption,” she explained in the mobile phone message.
PEZA has been contesting the removal of the 5% tax on GIE paid by locators in lieu of other local and national taxes. Companies have to deal with various government agencies for the various tax payments.
The Philippine Exporters Confederation, Inc. (PhilExport), along with several foreign business chambers, has expressed support for the CIT reduction.
“The drop in CIT is seen to attract investors, increase the country’s competitiveness and help address particularly the cash flow issue of MSMEs. But in this crisis, this tax reform will particularly be relevant especially to small- and medium-sized businesses bleeding from the impacts of the lockdowns and COVID-19 pandemic,” PhilExport President Sergio R. Ortiz-Luis, Jr. said in a statement last week. — Genshen L. Espedido and Jenina P. Ibañez