Philippines' Corporate Tax Reform Progressing

by Mary Swire, Tax-News.com, Hong Kong

29 March 2018

Corporate tax reform in the Philippines has moved a step closer with the introduction of House Bill No. 7458 into the country's parliament.

The bill provides for a one-percentage-point reduction in the current 30 percent rate of corporate income tax every year for domestic corporations, resident foreign corporations, and non-resident foreign corporations starting from next year. This will ultimately take the corporate income tax rate to 20 percent.

In addition, fiscal incentives are to be modernized to make them performance-based, targeted, time-bound, and transparent.

According to the Finance Ministry, under the bill's simplified and harmonized menu of incentives, businesses in industries that provide positive spillover to the economy may be granted an income tax holiday for up to three years, a reduced corporate income tax rate of 15 percent for up to 5 years (inclusive of the income tax holiday), and a 50 percent tax allowance for qualified capital expenditure, along with varied rates of tax deductions for research and development, training, labor expenses, infrastructure development, and reinvestment.

The bill proposes to expand the mandate of the Fiscal Incentives Review Board beyond government-owned and government-controlled corporations to include the approval of incentives to all registered enterprises, following a recommendation from one of the various investment promotion agencies.

In step with the goal of making investment incentives time-bound, the bill contains a "sunset" or a phase-out provision for incentives granted to registered enterprises for over two to five years, depending on the length of time these businesses have already benefited from such perks.

Stricter reporting and monitoring requirements are proposed to promote accountability on the part of registered enterprises.

The enforcement powers of the Bureau of Internal Revenue are strengthened, particularly with regard to the prosecution of tax cases.

The administration of allowable deductions and tax payment processes are simplified, and the definition of large taxpayers is expanded.

The measures are part of "Package 2" of the Duterte administration's Comprehensive Tax Reform Program (CTRP). The Department of Finance said it intends to introduce the rest of the CTRP package, which will cover property and capital income taxation, later this year.

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