Proposed graduated corporate income tax for CITIRA already used in several ASEAN countries

The graduated corporate income tax (CIT) schedule is already being implemented in six of the 10 member countries in the Association of Southeast Asian Nations (ASEAN), and the Philippines will only be doing catch-up if it administers the system, says a Trustee of the country’s largest organization of exporters.

Oscar A. Barrera, Trustee for the Chemicals sector of the Philippine Exporters Confederation, Inc. (PHILEXPORT), clarified that the group’s proposal for a graduated system of corporate taxation to be part of Corporate Income Tax and Incentives Rationalization Act (CITIRA), is already being implemented in 60% of ASEAN countries.

This is based on a PHILEXPORT research using the tax guides from international audit firms Deloitte, Ernst & Young, and PricewaterhouseCoopers.

PHILEXPORT in a position paper last November had expressed support for Senate Bill (SB) No. 595, which seeks to implement corporate income tax reform and fix the complex tax incentive system in the country.

Specifically, PHILEXPORT favored “an equitable and progressive system of taxation” over the current unitary or single income tax rate for corporate taxpayers.

The present system, it pointed out, imposes “an equally high tax rate on small companies that have very limited cash flow” as it does on large companies, “consequently decreasing [small firms’] ability to expand and contribute more to the economy.”

Should the Philippines decide to pursue a graduated CIT schedule, it would become the seventh ASEAN country to do so, it added. The others are Brunei Darussalam, Indonesia, Laos, Malaysia, Singapore, and Thailand, said the PHILEXPORT position paper.

Data shows that in Brunei, the progressive income tax rate is 4.625%, 9.25%, and 18.5% based on chargeable income. Indonesia applies tax rates of 0.5%, 12.5%, and 25%, while Malaysia implements 17% and 24% tax rates, based on net taxable income.

Meanwhile, Singapore’s standard corporate income tax rate is 17%, with tax exemptions for 75% of the first SGD10,000, and 50% of the next SGD290,000 (SGD190,000 effective 2020). Thailand follows a 1%-15%-20% taxation scheme based on net profit.

Laos imposes a standard flat corporate tax rate of 24% for companies registered under the Value Added Tax (VAT) system, and a progressive lump-sum tax of between 3% and 7% for non-VAT-registered SMEs.

On the other hand, the Philippines has the highest corporate income tax rate in Southeast Asia at a flat 30%, placing a heavy burden on MSMEs, which continue to struggle with financing and competitiveness challenges, said the paper.

Barrera stressed that a progressive implementation of the CIT “can be a game changer for the MSMEs as it will give them more breathing space in terms of cash flow” and “energize our MSMEs and encourage them to expand their business.”

“This scheme should also assist entrepreneurial Filipinos and make them more cost- and market-competitive locally and internationally,” added Barrera, also chairman of the Export Development Council Networking Committee on Legislative Advocacy and Monitoring. “At the moment, the tax regime in the country has put Philippine companies in an uneven playing field with counterparts especially in ASEAN.”

This bill, filed by Senator Ralph G. Recto, proposes to apply segmented tax rates according to companies’ taxable income. It seeks to lower the CIT from the current single rate of 30% to a graduated rate ranging from 5% to 25%.

In the same context of supporting hardworking Filipinos, Barrera cited Sen. Recto’s bill proposing to exempt overtime pay from taxes to help augment their income.

While voicing support for the Recto bill, PHILEXPORT position paper also suggested “consolidating and putting together the salient features of the proposed bills in Senate and improving certain sections so as to create a comprehensive and inclusive legislation.”

News outlets last month quoted Trade Secretary Ramon M. Lopez as saying that he was studying PHILEXPORT’s position on SB 595, and would come up with a position on the matter.

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