corporate income tax and incentives reform€¦ · 3/3/2020 · tax incentives, many of which are...
TRANSCRIPT
DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
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DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
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Karl Kendrick T. ChuaUndersecretary
Department of Finance
CORPORATE INCOME TAX AND INCENTIVES REFORM
Dispelling the Myths
CITIRA forumPhilippine International Convention Center, Pasay CityMarch 3, 2020
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Vision for the Philippines
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Poverty reduction is encouraging.
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26.325.2
23.3
16.6
14.0
12
16
20
24
28P
ove
rty
rate
(p
erce
nt)
Full-year poverty estimates among the population
Source: PSA
Note: Poverty rates for 2021 to 2022 represent government targets.
or lower
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Infrastructure spending
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Infrastructure spending
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Photo: IRRI
Rice liberalization is…
pro-consumerpro-farmerpro-taxpayerpro-workerspro-childrenpro-poor
Photo: IRRI
Photo: IRRI
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Rice liberalization reform is a game-changer.
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Leading to a decline in inflation from its peak in September 2018
Photo: IRRI
Photo: IRRI
Photo: IRRI
Photo: IRRI
Source: PSA8
3.43.9
4.3 4.5 4.6
5.25.7
6.46.7 6.7
6.0
5.1 5.2
4.4
3.83.3
3.0 3.22.7
2.4
1.7
0.9 0.81.3
2.5 2.52.9
0
1
2
3
4
5
6
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2018 2019 2020
Pe
rce
nt
Rice Tariffication Law signed.
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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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TRAIN Law
Impact on Taxpayer’sPersonal Income
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Some economic priorities in next three years1. Accelerate implementation of the Build Build Build infrastructure program.
2. Pursue economic reforms to increase FDI and jobs. Priority bills include the:
• Public Service Act amendment,
• Retail Trade Liberalization Act amendment, and
• Foreign Investment Act amendment.
3. Improve implementation of existing reforms such as the National ID Law, Ease
of Doing Business Law, Universal Health Care Law, Rice Tariffication Law
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, while ensuring sustainable financing for the
infrastructure program.12
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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 4
Passive incomeand financial taxes
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Tax reform is about INVESTING in our country’s FUTURE.
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MYTH #1
CITIRA is anti-incentives.
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CITIRA to promote a fair and accountable tax incentives system
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.
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In 2017, over PHP 441 billion (2.8% of GDP) was granted to 3,150 firms.
Source: DTI, TIMTA, and DOF estimates
PHP 441 billion in foregone revenue in 2017 from tax incentives, many of which are unnecessary incentives.
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 possibleabuse of transfer pricing.
Total: PHP 504 billion(3.2% of 2017 GDP)
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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)
CITIRA offers a more competitive incentives menu that rewards performance with more incentives.
Direct labor expense
Training expense
Domestic inputs purchased
R&D costs
Power expense
Depreciation allowance
Reinvestment allowance for manufacturing
Net operating loss carry-over
Under status quo
Up to 150% deductiona
Up to 150% deductionb
Up to 100% deduction
Up to 100% deduction
Up to 100% deduction
-
-
Carried over for the next 3 years
Under CITIRA
Up to 150% deduction
Up to 200% deduction
Up to 150% deduction
Up to 200% deduction
Up to 150% deduction
10% for buildings, 20% for machinery
Up to 50% of reinvested profit (within 5 years from time of reinvestment)
Incurred during first 3 years carried over next 5 years
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MYTH #2CITIRA 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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*FIRB may delegate approval to IPA or the Technical Committee. 21
The FIRB will have oversight functions over allIPAs, and approves all incentives, unless delegated.
Current structure
PEZA, BOI, CEZA, PPMC, TIEZA, and all other IPAs
Process and approve application for incentives
for private entities
FIRB
Process and approve application for subsidies for
GOCCs and other government agencies
Proposed structure
Congress
Decides on the incentives package
FIRB
Oversight and approver of all tax incentives and subsidies*
BOI
Determines the priority sectors through the SIPP
CEZA
ZCSEZ
APECO
PPMC
TIEZA
BCDA
PIA
SBMA
AFAB
PEZA
CDC
RBOI
Recommends to FIRB qualified RBEs for incentives
IPAs
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NCI I
NCI II
Secretariat
Board
Technical Committee
Secretariat
MalaysiaNational Committee on Investment
Philippines CITIRAFiscal Incentives Review Board
Note: Secretary level
OPDOF** DTI* DBM NEDA
DOF** DTI DBM NEDA BIR BOCNote: Next in rank level
NTRC, head is DOF asec
FIRB follows the Malaysian model in tax incentives administration.
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**Chairperson*Co-chairperson
OP
MOF*(DOF)
MITI*(DTI)
MIDA(BOI)
IRB(BIR)
BNM(BSP)
MEA(NEDA)
Note: Minister level
MOF*(DOF)
MITI*(DTI)
MIDA*(BOI)
IRB(BIR)
BNM(BSP)
MEA(NEDA)
Note: Vice minister level
*Co-chairperson
MIDA (BOI), head is vice-minister level
Note: IPAs and other agencies may co-opt as members, when needed.
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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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CITIRA will lower the corporate income tax rate to make it regionally competitive and create 1.5 million jobs
over the next decade.
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The incentive system is being improved to make sure that we can:
Image source: flaticon.com
Innovate Improve our position inglobal value chains
Participate in more high-value activities
DRAFT FOR DISCUSSION. SUBJECT FOR CHANGE.
Skilled and hardworking talent pool that needs sufficient
human capital investments.Solution: investment in K12,
TESDA, UHC
Ambitious infrastructure development program that requires fiscal commitment.Solution: PHP 8 trillion BBB
Sizeable small and medium enterprise community that
deserves to be treated fairly through easier doing business
processes. Solution: EODB
Government is hard at work to improve conditions for all businesses and ultimately, the Filipino people
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Draft for discussion. Subject to change.Draft for discussion. Subject to change.
The corporate income tax (CIT) rate reduction is the biggest incentive for Philippine businesses
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Key provision HB 4157 SB 1357
SEC. 5Section 27 (A)
SEC. 6Section 28 (A)(1)Section 28 (B)(1)
Corporateincome tax (CIT) rate
1 percentage point (ppt) reduction every year
2020: 29%2021: 28%2022: 27%...2029: 20%
1 ppt reduction every year
2020: 29%2021: 28%2022: 27%...2029: 20%
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Conditions for CIT reduction
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Key provision HB 4157 SB 1357SEC. 5Section 27 (A)
SEC. 6Section 28 (A)(1)Section 28 (B)(1)Condition for CIT reduction
If savings are realized, then advance the next decrease;
If deficit is breached, then postpone the next decrease
No condition for 2020 to 2024:If deficit will be breached, then cut spending;
With condition for 2025 to 2029:If deficit is breached, then postpone the next decrease
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Sunset period for income tax holiday (ITH) availers
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Key provision HB 4157 SB 1357SEC. 10Section 311(A)Sunset period for income tax holiday availers (ITH)
Section 311(B)Sunset for unfinished ITH with succeeding gross income earned (GIE)
Allow ITH to expire on schedule with max of 5 years
Allow ITH to expire on schedule
Allow ITH to expire followed by a 5% GIE, with a maximum of 5 years
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Sunset period for gross income earned (GIE) incentive availers
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Key provision HB 4157 SB 1357
SEC. 10Section 311(C)Sunset period for forever GIE tax availers (in years)
More than 10y: 2y 5 to 10 y: 3yLess than 5y: 5y
More than 10y: 2y 5 to 10y: 3yLess than 5y: 5y
Conditions for special 7y:100% exporter, or10,000 jobs, orfootloose sector
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Special tax rate during sunset
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Key provision HB 4157 SB 1357SEC. 10Section 311 (C)(1) to (4)Special tax rate during the sunset period for GIE
Gross income regime2020: 5%...
Gross income regime2020: 5%...
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
RHQ/ROHQ sunset
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Key provision HB 4157 SB 1357SEC. 6Section 28(A)(5)(a)(b)Sunset for RHQ/ROHQ
RHQ: maintain exemptionROHQ: 2 years
RHQ: maintain exemptionROHQ: 2 years
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
ROHQ regime can risk a grey listing from OECD FHTP
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Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Availment period for new incentives
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Key provision HB 4157 SB 1357
SEC. 10Section 296(A)Availment period for new incentives (in years)
NCR: 5yAround NCR: 7yOther areas: 10y
5 to 8 years depending on category
Category is based on geographic and industry targeting where:A is for basicB is for enhancedC is for advanced
ITH + SCIT = totalA: 2+3=5 yearsB: 3+4=7 yearsC: 4+4=8 years
Extensions allowed, total of 12 years for all incentives.
Note: ITH refers to income tax holiday and SCIT refers to special corporate income tax rate.
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Additional incentives availment
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Key provision HB 4157 SB 1357
SEC. 10
Section 296(B)
Additional incentives
availment (in years)
Relocating outside NCR: +3
years
Agribusiness: +3 years
Poor, disaster, or conflict areas:
+3 years
None
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Incentives package A: standard
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Key provision HB 4157 SB 1357
SEC. 10
Section 294(B)
Special rate regime
Net income regime Gross income regime
Key provision HB 4157 SB 1357
SEC. 10
Section 294(B)
Special rate
(total)
Fix rate
2020: 18%
2021: 18%
2022: 17%...
2030: 13%
Fix rate
2020: 8%
2021: 9%
2022: 10%...
2030: 10%
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
“In lieu of” provision
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Key provision HB 4157 SB 1357
SEC. 10
Section 294(B)
“ ”
In lieu of local business tax In lieu of all taxes, national and
local (status quo based on IPA
charter)
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Incentives package B: performance-basedKey provision HB 4157 SB 1357
SEC. 10Section 294(C)Incentive package B: Performance-based incentives: Additional deduction when availing of regular rate and in lieu of special rate
Included Included
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Additional deductionsKey provision HB 4157 SB 1357
SEC. 10Section 294(C)(2)Labor
Up to 50% Up to 50%
SEC. 10Section 294(C)(5)Domestic input
Up to 50% Up to 50%
SEC. 10Section 294(C)(6)Power
0% Up to 50%
SEC. 10
Section 294(C)(7)
Reinvestment for manufacturing
Up to 50% Up to 50%
SEC. 10
Section 294(C)(3)
Research and development
Up to 100% Up to 100%
SEC. 10
Section 294(C)(4)
Training
Up to 100% Up to 100%
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Additional depreciation and NOLCO
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Key provision HB 4157 SB 1357
SEC. 10
Section 294(C)(1)
Building
10% 10%
SEC. 10
Section 294(C)(1)
Equipment and machinery
20% 20%
Key provision HB 4157 SB 1357
SEC. 10
Section 294(C)(8)
Net operating loss carryover
3 years loss carryover 5 years 3 years loss carryover 5 years
Draft for discussion. Subject to change.Draft for discussion. Subject to change.
Power of the president to grant additional incentives
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Key provision HB 4157 SB 1357
SEC. 10
Section 301
Additional incentives
(special power of president)
President can approve special
applications;
Conditions:
High priority sector or
USD 200 million investment or
1,500 jobs;
President can approve special
applications, max of 40 years;
Conditions:
High priority sector or
USD 1 billion investment or
10,000 jobs;
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
In summary, CITIRA provides a reasonable sunset period.
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Notes:1. Firms with existing registered activities can reapply to avail of the new menu of incentives, provided certain criteria are met.2. Since incentives are granted on a per project basis, a firm can apply for a fresh set of incentives through new projects, subject to certain requirements.3. SCIT stands for the special corporate income tax that can either be the special corporate income tax rate.4. Enhanced deductions subject to regular corporate income tax may be availed in lieu of the ITH and SCIT.5. Total number of years of receiving incentives under the new incentives regime shall not exceed 12 years.
No Case StatusExisting
incentivesTransition
periodTotal years
of transition
Application for qualified
activity
Newincentives regime
SCIT extension if conditions
are met
Total years for new regime
Same firm to apply
new activities
Total yearsof enjoying incentivesITH SCIT
1Category A
activity
Continuing activity
(less than 5 years of 5%
GIE)
2 out of 4 years of ITH
(2018 to 2021)
Finish 2years of ITH
and5 years
of 5% GIE(2020 to
2026)
7 years Allowed None5 years
(2027 to 2031)
3 years(2032 to
2034)
8+ years(max of 12
years)Allowed 15+ years
2Category B
activity
Continuing activity
(less than 5 years of 5%
GIE)
4 years of ITH and 4
years of 5% GIE (2012 to
2019)
5 yearsof 5% GIE(2020 to
2024)
5 years Allowed None7 years
(2025 to 2031)
4 years(2032 to
2035)
11+ years(max of 12
years)Allowed 16+ years
3Category B
activity
Continuing activity
(between 5 and 10
years of 5% GIE)
4 years of ITH and 7
years of 5% GIE (2009 to
2019)
3 yearsof 5% GIE(2020 to
2022)
3 years Allowed None7 years
(2023 to 2029)
4 years(2030 to
2033)
11+ years(max of 12
years)Allowed 14+ years
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Notes:1. Firms with existing registered activities can reapply to avail of the new menu of incentives, provided certain criteria are met.2. Since incentives are granted on a per project basis, a firm can apply for a fresh set of incentives through new projects, subject to certain requirements.3. SCIT stands for the special corporate income tax that can either be the special corporate income tax rate.4. Enhanced deductions subject to regular corporate income tax may be availed in lieu of the ITH and SCIT.5. Total number of years of receiving incentives under the new incentives regime shall not exceed 12 years.
No Case StatusExisting
incentivesTransition
periodTotal years
of transition
Application for qualified
activity
Newincentives regime
SCIT extension if conditions
are met
Total years for new regime
Same firm to apply
new activities
Total yearsof enjoying incentivesITH SCIT
4Category C
activity
Continuing activity
(more than 10 years of
5% GIE)
4 years of ITH and 11 years of 5% GIE (2005 to
2019)
2 yearsof 5% GIE(2020 to
2021)
2 years Allowed None8 years
(2022 to 2029)
4 years(2030 to
2033)
12 years(max of 12
years)Allowed 14+ years
5Category C
activity(footloose)
Continuing activity
(more than 10 years of
5% GIE)
4 years of ITH and 11 years of 5% GIE (2005 to
2019)
7 yearsof 5% GIE(2020 to
2026)
7 years Allowed None8 years
(2027 to 2034)
4 years(2035 to
2038)
12 years(max of 12
years)Allowed 19+ years
6Category C
activity
New activity
(ITH yet to start, no
GIE)
6 years of ITH to start
on 2022
6 yearsof ITH
(2022 to 2027)
6 years Allowed None8 years
(2028 to 2035)
4 years(2036 to
2039)
12 years(max of 12
years)Allowed 18+ years
In summary, CITIRA provides a reasonable sunset period.
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1.97
1.30
0.13
9.80
-1
1
3
5
7
9
11
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Approved foreign investments by investment promotion agency and foreign direct investments, in USD billions
BOI PEZA Other IPAs FDISource: PSA
1. Wider gap between total FDI and approved FDI means most ’
2. PEZA approved investments have been declining even without Package 2.
3. BOI approved investments are higher than PEZA, suggesting that ’ to invest.
4. Prior to 2013, PEZA approved FDI were consistently higher than total FDI. This suggests that many approved ’ z
USD
bill
ion
s
The far majority of investors see other more important reasons for investing in the Philippines
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Record high FDI pledges in 2019 despite CITIRA
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Our goal: a comfortable life for all Filipinos
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Thank you!For more information, please visit:
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http://taxreform.dof.gov.ph/publication/recent-presentations/
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