By Chino S. Leyco
Qualified enterprises to benefit from the new set of investment incentives under the second tax reform package, while at the same time would bring down their tax payments while creating jobs or meeting export targets, the Department of Finance (DOF) said.
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According to DOF, the second package offers firms registered with investment promotion agencies (IPAs) a better and more attractive set of incentives that are not present in the current tax regime.
These new incentives under the second comprehensive tax reform package (CTRP-2) include additional tax deductions on labor, training, infrastructure, domestic input and research and development.
“This tax reform allows qualified firms to make deductions based on whether they generate more jobs, provide additional training to workers, source their goods domestically, introduce innovations or reinvest their profits,” the DOF said.
“Provided they meet the criteria to avail of these deductions, it may be possible for firms to pay lower or zero tax under this incentives regime proposed under Package 2,” it added.
Package 2 of the CTRP aims to reduce the corporate income tax (CIT) and modernize the fiscal incentives system.
The House of Representatives approved its version of Package 2, dubbed the Tax Reform for attracting Better and High-Quality Opportunities Act (TRABAHO) last September.
The Senate is still discussing in its ways and means committee its version filed by Senate President Vicente Sotto III and called the Corporate Income Tax and Incentives Reform Act.
Citing an example, the DOF said a business process outsourcing firm that is labor-intensive, may get to pay zero tax under Package 2 if it is able to maximize up to 50 percent additional deductions on labor and 100 percent on workers' training programs.
Citing another example, the DOF said that a BPO company’s effective tax rate need not change even under the new incentives regime if it uses the additional deductions to create jobs.
The manufacturing industry may also benefit from this pro-incentive tax reform program when manufacturers make good use of the following additional deductions: 50 percent on domestic inputs; depreciation allowance of up to 20 percent; and 100 percent on trainings.
Apart from the regular five-year maximum period for the grant of incentives, Package 2 will also give an additional two years of incentives to firms that will relocate outside Metro Manila and provide job opportunities in rural areas.