TRABAHO bill not seen to hit gov’t revenues hard

FILE: People looking for jobs. Image taken at SM Dasmariñas (Photo: Frisno Boström/Flickr, CC BY-NC-ND 2.0)

MANILA — Philippine government revenues are not expected to take a serious blow from the proposed cut in corporate income tax (CIT) rates.

Fitch Solutions, an affiliate of Fitch Ratings Inc., in a study said that “although CIT accounted for almost a quarter of total government revenue (according to the latest available breakdown in 2015), we believe that this will have a limited impact on the government’s finances over the immediate term and also the longer term.”

“We expect the bill to have negligible impact on revenue collection in the near-term, while the longer-term reduction will likely be offset by the rationalisation of tax incentives and other revenue enhancing measures contained in subsequent packages of the Comprehensive Tax Reform Program,” it said.

Members of the House of Representatives passed on third and final reading the bill entitled “Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) last September 10.

The bill aims to cut the current 30 percent CIT rate by two percent every two years until it goes down to 20 percent by 2029. Once signed into law, the measure is targeted to be implemented in 2021.

The research firm said impact of the proposed measure on government revenues is around PHP62 billion on its first year of implementation and this is estimated to be around 1.5 percent of expected revenue for that year.

“Moreover, the TRABAHO also seeks to trim tax incentives that are offered to investors, making them more selective and less encompassing, and this will likely offset some of the loss in revenue from lower corporate taxes,” it said.

However, Fitch Solutions noted that “on the investment front, we are unconvinced that the lowering of CIT rates will provide a significant boost, in the absence of accompanying improvements to the business environment.”