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DISCUSSION.SUBJECT
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TO CHANGE.

CITIRA forum
Philippine International Convention Center, Pasay City
March 3, 2020

CORPORATE INCOME TAX

AND INCENTIVES REFORM
Dispelling the Myths
Karl Kendrick T. Chua
Undersecretary
Department of Finance

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Vision for the Philippines

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Poverty reduction is encouraging.

Full-year poverty estimates among the population
28 26.3
25.2
23.3
Poverty rate (percent)

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20
16.6
16
14.0
or lower
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Source: PSA
Note: Poverty rates for 2021 to 2022 represent government targets.

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Infrastructure spending

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Infrastructure spending

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Rice liberalization reform is a game-changer.

Rice liberalization is…

pro-consumer
pro-farmer
Photo: IRRI

pro-taxpayer
pro-workers
pro-children
pro-poor
Photo: IRRI
Photo: IRRI 7 7
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Leading to a decline in inflation

from its peak in September 2018
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6.7 6.7 Rice Tariffication Law signed.
7 6.4
6.0
6 5.7
5.2 5.1 5.2
5 4.3 4.5
4.6 4.4
Percent

3.9 3.8
4 3.4 3.3
3.0 3.2 2.9
3 2.7 2.5 2.5
2.4
2 1.7
1.3
0.9 0.8
1
0
Photo: IRRI

Photo: IRRI
Photo: IRRI

Photo: IRRI

2018 2019 2020 8

Source: PSA
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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’s
Personal Income

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Some economic priorities in next three years

1. 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.
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Among our economic priorities is the passage of the

remaining tax reform packages

Package 2 Package 3 Package 4

Corporate income tax Property valuation Passive income
and incentives reform and 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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PHP 441 billion in foregone revenue in 2017 from

tax incentives, many of which are unnecessary incentives.
In 2017, 989,166 registered
1. Firms with no incentives pay the firms, most of which pay
regular rate of 30% of net taxable the regular tax rate.
income. In 2017, over PHP 441
billion (2.8% of GDP) was
2. For example, almost all of the granted to 3,150 firms.
90,000 SMEs pay the regular 30%
In addition, PHP 63 billion
rate.
(0.4% of GDP) was lost due
to possible
3. Firms with incentives pay between abuse of transfer pricing.
6% and 13% effective tax.
Total: PHP 504 billion
(3.2% of 2017 GDP)
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Source: DTI, TIMTA, and DOF estimates
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CITIRA offers a more competitive incentives menu

that rewards performance with more incentives.
Under status quo Under CITIRA
Direct labor expense Up to 150% deductiona Up to 150% deduction
Training expense Up to 150% deductionb Up to 200% deduction
Domestic inputs purchased Up to 100% deduction Up to 150% deduction
R&D costs Up to 100% deduction Up to 200% deduction
Power expense Up to 100% deduction Up to 150% deduction
Depreciation allowance - 10% for buildings, 20% for machinery
Reinvestment allowance for - Up to 50% of reinvested profit
manufacturing (within 5 years from time of reinvestment)
Net operating loss carry-over Carried over for the next 3 years Incurred during first 3 years
carried over next 5 years
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)
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MYTH #2
CITIRA 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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The FIRB will have oversight functions over all

IPAs, and approves all incentives, unless delegated.
Current structure Proposed structure

PEZA, BOI, CEZA, PPMC,

Congress FIRB
TIEZA, and all other IPAs
Decides on the Oversight and approver of all
Process and approve incentives package tax incentives and subsidies*
application for incentives
for private entities
IPAs BOI
Recommends to FIRB Determines the priority
qualified RBEs for incentives sectors through the SIPP
FIRB
CEZA PPMC PIA PEZA
Process and approve ZCSEZ TIEZA SBMA CDC
application for subsidies for
APECO BCDA AFAB RBOI
GOCCs and other
government agencies
*FIRB may delegate approval to IPA or the Technical Committee. 21
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FIRB follows the Malaysian model in tax incentives administration.

Malaysia Philippines CITIRA
National Committee on Investment Fiscal Incentives Review Board

NCI I Board
MOF* MITI* MEA BNM IRB MIDA
(DOF) (DTI) (NEDA) (BSP) (BIR) (BOI) DOF** DTI* DBM NEDA OP
Note: Minister level Note: Secretary level

Technical
NCI II MOF* MITI* MEA BNM IRB MIDA*
Committee DOF** DTI DBM NEDA OP BIR BOC
(DOF) (DTI) (NEDA) (BSP) (BIR) (BOI)
Note: Vice minister level Note: Next in rank level

Secretariat Secretariat
MIDA (BOI), head is NTRC, head is DOF asec
vice-minister level

*Co-chairperson **Chairperson
Note: IPAs and other agencies may co-opt as *Co-chairperson
members, when needed. 22
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MYTH #3
CITIRA will make
the Philippines uncompetitive.
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We have the highest corporate income tax rate in the region.

Source: Asian Development Bank and PWC

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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 in Participate in more high-
global value chains value activities
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Government is hard at work to improve conditions for

all businesses and ultimately, the Filipino people

Skilled and hardworking talent

Ambitious infrastructure Sizeable small and medium
pool that needs sufficient
development program that enterprise community that
human capital investments.
requires fiscal commitment. deserves to be treated fairly
Solution: investment in K12,
Solution: PHP 8 trillion BBB through easier doing business
TESDA, UHC
processes. Solution: EODB
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 Draft for discussion. Subject to change.

The corporate income tax (CIT) rate reduction is

the biggest incentive for Philippine businesses
Key provision HB 4157 SB 1357
SEC. 5 1 percentage point (ppt) 1 ppt reduction every year
Section 27 (A) reduction every year

SEC. 6 2020: 29% 2020: 29%

Section 28 (A)(1) 2021: 28% 2021: 28%
Section 28 (B)(1) 2022: 27%... 2022: 27%...
2029: 20% 2029: 20%
Corporate
income tax (CIT) rate

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 Draft for discussion. Subject to change.

Conditions for CIT reduction

Key provision HB 4157 SB 1357
SEC. 5 If savings are realized, then No condition for 2020 to 2024:
Section 27 (A) advance the next decrease; If deficit will be breached, then
cut spending;

SEC. 6 If deficit is breached, then With condition for 2025 to 2029:

Section 28 (A)(1) postpone the next decrease If deficit is breached, then
Section 28 (B)(1) postpone the next decrease
Condition for CIT reduction

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 Draft for discussion. Subject to change.

Sunset period for income

tax holiday (ITH) availers
Key provision HB 4157 SB 1357
SEC. 10 Allow ITH to expire on schedule Allow ITH to expire on schedule
Section 311(A) with max of 5 years
Sunset period for income tax
holiday availers (ITH)
Allow ITH to expire followed by a
Section 311(B) 5% GIE, with a maximum of 5
Sunset for unfinished ITH with years
succeeding gross income earned
(GIE)

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 Draft for discussion. Subject to change.

Sunset period for gross income

earned (GIE) incentive availers
Key provision HB 4157 SB 1357
SEC. 10 More than 10y: 2y More than 10y: 2y
Section 311(C) 5 to 10 y: 3y 5 to 10y: 3y
Sunset period for forever Less than 5y: 5y Less than 5y: 5y
GIE tax availers (in years)
Conditions for special 7y:
100% exporter, or
10,000 jobs, or
footloose sector

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 Draft for discussion. Subject to change.

Special tax rate during sunset

Key provision HB 4157 SB 1357
SEC. 10 Gross income regime Gross income regime
Section 311 (C)(1) to (4) 2020: 5%... 2020: 5%...
Special tax rate during the
sunset period for GIE

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 Draft for discussion. Subject to change.

RHQ/ROHQ sunset
Key provision HB 4157 SB 1357
SEC. 6 RHQ: maintain exemption RHQ: maintain exemption
Section 28(A)(5)(a)(b) ROHQ: 2 years ROHQ: 2 years
Sunset for RHQ/ROHQ

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 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.

Availment period for new incentives

Key provision HB 4157 SB 1357
SEC. 10 NCR: 5y 5 to 8 years depending on category
Section 296(A) Around NCR: 7y
Availment period for new Other areas: 10y Category is based on geographic and industry targeting
incentives (in years) where:
A is for basic
B is for enhanced
C is for advanced

ITH + SCIT = total

A: 2+3=5 years
B: 3+4=7 years
C: 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. 35
 Draft for discussion. Subject to change.

Additional incentives availment

Key provision HB 4157 SB 1357
SEC. 10 Relocating outside NCR: +3 None
Section 296(B) years
Additional incentives
availment (in years) Agribusiness: +3 years

Poor, disaster, or conflict areas:

+3 years

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 Draft for discussion. Subject to change.

Incentives package A: standard

Key provision HB 4157 SB 1357
SEC. 10 Net income regime Gross income regime
Section 294(B)
Special rate regime

Key provision HB 4157 SB 1357

SEC. 10 Fix rate Fix rate
Section 294(B)
Special rate 2020: 18% 2020: 8%
(total) 2021: 18% 2021: 9%
2022: 17%... 2022: 10%...
2030: 13% 2030: 10%

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 Draft for discussion. Subject to change.

“In lieu of” provision

Key provision HB 4157 SB 1357
SEC. 10 In lieu of local business tax In lieu of all taxes, national and
Section 294(B) local (status quo based on IPA
“ ” charter)

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 Draft for discussion. Subject to change.

Incentives package B: performance-based

Key provision HB 4157 SB 1357
SEC. 10 Included Included
Section 294(C)
Incentive package B:
Performance-based incentives:
Additional deduction when
availing of regular rate and in
lieu of special rate
 Draft for discussion. Subject to change.

Additional deductions
Key provision HB 4157 SB 1357
SEC. 10 Up to 50% Up to 50%
Section 294(C)(2)
Labor
SEC. 10 Up to 50% Up to 50%
Section 294(C)(5)
Domestic input
SEC. 10 0% Up to 50%
Section 294(C)(6)
Power
SEC. 10 Up to 50% Up to 50%
Section 294(C)(7)
Reinvestment for manufacturing
SEC. 10 Up to 100% Up to 100%
Section 294(C)(3)
Research and development
SEC. 10 Up to 100% Up to 100%
Section 294(C)(4)
Training
 Draft for discussion. Subject to change.

Additional depreciation and NOLCO

Key provision HB 4157 SB 1357
SEC. 10 10% 10%
Section 294(C)(1)
Building
SEC. 10 20% 20%
Section 294(C)(1)
Equipment and machinery

Key provision HB 4157 SB 1357

SEC. 10 3 years loss carryover 5 years 3 years loss carryover 5 years
Section 294(C)(8)
Net operating loss carryover

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 Draft for discussion. Subject to change.

Power of the president to

grant additional incentives
Key provision HB 4157 SB 1357
SEC. 10 President can approve special President can approve special
Section 301 applications; applications, max of 40 years;
Additional incentives
(special power of president) Conditions: Conditions:
High priority sector or High priority sector or
USD 200 million investment or USD 1 billion investment or
1,500 jobs; 10,000 jobs;

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In summary, CITIRA provides a reasonable sunset period.

New SCIT Same firm
Application incentives regime Total years Total years
Existing Transition Total years extension if to apply
No Case Status for qualified for new of enjoying
incentives period of transition conditions new
activity ITH SCIT regime incentives
are met activities

Finish 2
Continuing years of ITH
2 out of 4
activity and 5 years 3 years 8+ years
Category A years of ITH
1 (less than 5 5 years 7 years Allowed None (2027 to (2032 to (max of 12 Allowed 15+ years
activity (2018 to
years of 5% of 5% GIE 2031) 2034) years)
2021)
GIE) (2020 to
2026)
Continuing 4 years of
5 years
activity ITH and 4 7 years 4 years 11+ years
Category B of 5% GIE
2 (less than 5 years of 5% 5 years Allowed None (2025 to (2032 to (max of 12 Allowed 16+ years
activity (2020 to
years of 5% GIE (2012 to 2031) 2035) years)
2024)
GIE) 2019)
Continuing
4 years of
activity 3 years
ITH and 7 7 years 4 years 11+ years
Category B (between 5 of 5% GIE
3 years of 5% 3 years Allowed None (2023 to (2030 to (max of 12 Allowed 14+ years
activity and 10 (2020 to
GIE (2009 to 2029) 2033) years)
years of 5% 2022)
2019)
GIE)
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. 43
5. Total number of years of receiving incentives under the new incentives regime shall not exceed 12 years.
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In summary, CITIRA provides a reasonable sunset period.

New SCIT Same firm
Application incentives regime Total years Total years
Existing Transition Total years extension if to apply
No Case Status for qualified for new of enjoying
incentives period of transition conditions new
activity ITH SCIT regime incentives
are met activities

Continuing 4 years of
2 years
activity ITH and 11 8 years 4 years 12 years
Category C of 5% GIE
4 (more than years of 5% 2 years Allowed None (2022 to (2030 to (max of 12 Allowed 14+ years
activity (2020 to
10 years of GIE (2005 to 2029) 2033) years)
2021)
5% GIE) 2019)
Continuing 4 years of
7 years
Category C activity ITH and 11 8 years 4 years 12 years
of 5% GIE
5 activity (more than years of 5% 7 years Allowed None (2027 to (2035 to (max of 12 Allowed 19+ years
(2020 to
(footloose) 10 years of GIE (2005 to 2034) 2038) years)
2026)
5% GIE) 2019)
New
6 years
activity 6 years of 8 years 4 years 12 years
Category C of ITH
6 (ITH yet to ITH to start 6 years Allowed None (2028 to (2036 to (max of 12 Allowed 18+ years
activity (2022 to
start, no on 2022 2035) 2039) years)
2027)
GIE)

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. 44
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The far majority of investors see other more

important reasons for investing in the Philippines
Approved foreign investments by investment promotion 1. Wider gap between total FDI
agency and foreign direct investments, in USD billions and approved FDI means most
11 ’
9.80
4. Prior to 2013, PEZA approved FDI
9 were consistently higher than total
FDI. This suggests that many approved
7
’ z 2. PEZA approved investments
have been declining even without
USD billions

5 Package 2.
3
1.97
1 1.30 3. BOI approved investments are
0.13 higher than PEZA, suggesting that
-1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
’
Source: PSA
BOI PEZA Other IPAs FDI to invest.

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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!
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