By Rea Cu, September 17 2018; Business Mirror


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THE Social Security System (SSS) along with several other government agencies have expressed their support for the proposed reforms in the corporate tax system, saying it would attract investments and create more jobs in the private sector, especially among micro, small and medium enterprises (MSMEs).

At a hearing of the House Committee on Ways and Means on the proposed corporate income tax (CIT) reform package or Package Two of the Comprehensive Tax Reform Program (CTRP), SSS President and CEO Emmanuel F. Dooc said lowering the CIT rate spells additional disposable income for employers, which, in turn, would lead to business expansions and more jobs. In turn, this translates to more SSS members.

“Right now, our current count is…about close to 5 million voluntary members, and another close to 5 million self-employed members. By giving incentives to the small businesses, we hope to see more robust, more vibrant business activities in this sector,” Dooc said.

The second package of the CTRP—which includes lowering the CIT and modernizing investment incentives—has been touted as bearing the potential to attract more investments in the country and spur more business activities for MSMEs.

“I hope that this will be passed into law, so that the SSS can provide better, universal and affordable social security benefits to our working class,” he added.

The House of Representatives approved on third and final reading on September 10 its version of the corporate tax-reform bill dubbed the Tax Reform for Attracting Better And High-quality Opportunities (Trabaho) Act.

The Department of Health (DOH) also expressed optimism on the second package, pointing out that it “will create new jobs, bring development to resource-constrained areas, and attract investments to research and development, new technologies and even medical tourism.”

The National Council of Disability Affairs said it “generally supports the measure,” and expressed willingness to work with the Department of Finance (DOF) in providing safety nets to ensure that the welfare of marginalized sectors like persons with disabilities remain protected once this tax- reform package is passed into law.

Filtering the tax perks

Earlier, the DOF said it has identified a total of 645 registered enterprises that continue to receive tax incentives even after 15 years in the business, proving that investment perks given usually to big or multinational firms—many of them “inherently profitable”—have become redundant and unnecessary.

Finance Undersecretary Karl Kendrick T. Chua said data reported by investment promotion agencies (IPAs) as mandated under the Tax Incentives Management and Transparency Act (Timta) also show that for 2015 alone, the government gave away P86 billion worth of income-tax incentives to firms that paid out a total of P83 billion combined in dividends.

He explained that when the DOF did a cost-benefit analysis of the registered firms in IPAs receiving tax incentives, it came up with three main factors to determine if the perks the firms are getting are necessary or not, or if these are redundant or nonredundant.

These factors are: the length of availment of incentives, to find out whether a firm has been receiving incentives for more than 15 years; profitability, to verify whether the firm is inherently profitable or not, and whether it is already earning three times the median of the industry it belongs to; and the motivation to invest, to find out why they chose to relocate here.

Chua said the DOF study showed that 43 percent of the firms registered with IPAs are worthy of being granted incentives, while the remaining 57 percent are receiving incentives that are already unnecessary or redundant.

The government lost P178.56 billion in potential revenues in 2016 alone as a result of tax incentives given out to only 3,102 firms registered with various IPAs, according to the DOF.

Based on data from the Bureaus of Internal Revenue and of Customs the government had forgone P74.53 billion in revenues from income-tax holidays, P46.66 billion from special income-tax rates and P57.38 billion in customs duties. The incentives from value-added tax (VAT) and local taxes have yet to be computed.

Data collated by the DOF for 2016 do not yet include forgone revenues from the VAT exemptions on imports and local VAT that enterprises registered with IPAs also get to enjoy.

It also does not yet include the foregone local taxes and leakages that may arise as a result of abuse of transfer pricing.

Foregone revenues from investment incentives, excluding VAT and local tax privileges, grew 71.03 percent in 2016 from the previous year’s figure of P104.40 billion and were 52.52 percent higher from 2015 projections. These revenue losses are expected to increase to P196.02 billion, or by 9.77 percent in 2017.