MANILA - The Department of Finance (DOF) stood pat on its position that fiscal incentives need to be "modernized" despite warnings from several business groups that many companies may transfer their operations to other countries if these incentives are removed.
The DOF reiterated on Wednesday that fiscal incentives will not be removed completely but will be "rationalized" in the second package of tax reforms being pushed by the government.
Under the proposed reforms, the corporate income tax rate will be lowered to 25 percent from the current 30 percent, while current fiscal incentives will be removed after five years to be replaced by other incentives, the DOF said.
"We would also be giving income-based incentives like investment tax allowance, double deductions for research and development and training expenses, 50 percent deduction for labor, deduction for infra and reinvestment of profits and some exemptions from customs duties for capital imports. So these are among the new things we want to consider in the new package," said Finance Assistant Secretary Paola Alvarez.
Meanwhile, companies enjoying the 5-percent gross income earned tax, such as those in the business process outsourcing (BPO) industry, will see this incentive replaced by a preferential corporate income tax rate of 15 percent based on net income.
The proposed reforms will also grant incentives to businesses that fall under the government's Strategic Investments Priorities Plan.
Alvarez said the current incentives are unfair to the vast majority of companies that need to pay the full corporate income tax.
"There would be more companies that would be benefiting from the lowering of the corporate income tax than those who are actually just receiving these incentives." Alvarez said.
She added, registered firms enjoying incentives under the investment promotion agencies represent less than 1 percent of the firms listed in the Bureau of Internal Revenue and account for only 6 percent of the total employment in the country.