DTI favors lower income tax rate for investors

MANILA, Philippines - The government plans to offer a lower tax rate on net income for a period of 10 years to investors instead of income tax holidays (ITH) under the proposal to rationalize fiscal incentives, a cabinet official said.

“We’re looking at the possibility of offering 10-year, 15 percent tax on net income in lieu of ITH,” Trade Secretary Gregory Domingo told reporters on the sidelines of the ASEAN Business Awards Philippines 2014.

Domingo said offering a 15 percent tax rate on net income instead of ITH has been agreed upon by the Trade and Finance departments.

A 15 percent tax on net income instead of granting ITH is still seen to entice investors to go to the country since it is the lowest rate in the region.

“We have tax treaties so companies don’t mind paying some taxes here as long as it is a very reasonable rate. 15 percent is a very reasonable rate,” Domingo said.

He added some companies that are exempt from payment of income taxes do not enjoy the incentive since operations are not yet profitable during the prescribed period.

“Instead of four years of ITH and then regular tax rate after, why not extend the period and assess them at a lower rate. That seems to be quite an attractive proposition,” he said.

The government is moving to simplify the incentive regime to make the country a more attractive location for investors, as well as cut the government’s foregone revenues.

The DTI wants to simplify the incentive regime by repealing some of the 50 laws providing incentives and consolidating them under the Investment Priorities Plan (IPP) released by the BOI every year.

The IPP serves as the country’s investment promotions blueprint and lists economic activities that can enjoy incentives.

Some of the laws, Domingo said, give incentives on a permanent basis.

“I think it’s very bad policy to give incentives on a permanent basis and that’s what these laws have granted…Incentives by nature should only be given when you need it. These are not needed to support the industry forever,” he said.

Apart from setting a limit in terms of the period incentives may be granted, it is also important to consolidate the laws so that the same set of incentives or mechanism could be used.

“There are different incentives. You should draw from the same set of incentives so that we can have same process,” he said.

The fiscal incentives bill is one of the Aquino administration’s top priority measures.