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Businesses will enjoy lower corporate income taxes next year but investors across a broad range of industries will lose their fiscal perks under the second installment of the Duterte administration's tax reform package filed by House leaders this week.
Tax evaders will also be punished with bigger fines and longer jail terms under the proposed "Corporate Income Tax and Incentives Reform Act," which will complement the "Tax Reform for Acceleration and Inclusion Act" that took effect this year.
On Wednesday, House ways and means committee chair Dakila Cua, Deputy Speaker Raneo Abu, and Deputy Majority Leader Aurelio Gonzales Jr. filed the 65-page
House Bill No. 7458 covering the second part of the tax reform program.
"Specifically, this bill proposes the lowering of corporate income taxes, reforming the corporate income tax system, broadening the tax base by modernizing investment tax incentives, removing excessive tax exemptions and privileges given to certain industries, and limiting the grant of tax incentives to strategic industries and lagging regions," they said in an explanatory note.
The lawmakers said the second tax package would supplement the TRAIN law, which lowered personal income tax for the middle class but imposed higher excise tax on fuels, cars, cosmetic procedures, and sweetened beverages.
One percent less
The central feature of the new tax bill is the provision reducing the corporate income tax rate by one percentage point every year beginning January 1, 2019 on the condition that it shall not go lower than 20 percent.
This applies to domestic and foreign corporations, which are both taxed at 30 percent of net income as of January 2009.
Economic managers earlier said the goal was to "gradually lower" the tax rate to 25 percent to put the Philippines on equal standing with its neighbors.
Standard corporate income taxes are at 20 percent in Thailand, 24 percent in Malaysia, and 25 percent in Vietnam.
To offset revenue losses from the reduced corporate taxes, the Cua-Abu-Gonzales bill introduces sweeping changes to the incentives system for many industries and sectors by repealing or amending sections of laws providing for tax perks.
Repeal
The bill repeals the Omnibus Investments Code of 1987 and introduces in an amendment a new set of chapters on tax incentives to the National Internal Revenue Code of 1997.
Some of the repealed sections would remove exemptions from the payment of taxes and customs duties of, among other industries and sectors, dairy production, fisheries, thrift banks, and organic agriculture.
The bill provides that tax exemptions and privileges shall only be given to certain strategic industries and lagging regions, under a "Strategic Investments Priority Plan" (SIPP) to be formulated by the Board of Investments in coordination with the Office of the President, Investment Promotion Agencies (IPAs), government agencies and the private sector.
The bill identifies the qualified activities for tax incentives, including inclusion in the Philippine Development Plan; performance in terms of export sales, actual job creation and investments in lagging regions, and in research and development; use of modern technology; and adoption of environmental protection systems.
Incentives
For a business to qualify for tax incentives, a "threshold amount" shall be set in terms of jobs created and investment poured into the project, subject to a periodic three-year evaluation, according to the bill.
The bill, however, grants the President the right to grant incentives to "highly desirable projects" outside the SIPP, provided that the benefits from the investment are so convincing as to outweigh the cost of the fiscal perks.
Such projects must meet other criteria such as a minimum investment of $500 million and minimum job generation of 1,500 within the first year.
Another provision in the bill would include telecommunication firms whose franchises are subject to taxes along with radio and broadcasting companies.
Penalties
The bill also amends the Tax Code to impose more stringent penalties for tax evasion.
The fine for any attempt to evade or defeat tax shall be punishable by fines of P300,000 to P1 million and imprisonment of six to 12 years. The current penalty involves a P30,000 to P100,000 fine and two to four years in jail.
Other tax-related offenses, including failure to file one's income tax return and falsifying entries, shall also be punishable by bigger fines under the bill.
Penalties are also multiplied for establishments that fail or refuse to issue receipts. They will be fined P100,000 to P500,000 and jailed for four to eight year under the bill./lb
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