HOUSE OKS ON 2ND READING BILL LOWERING CORPORATE TAX & FIXING INCENTIVES + HOUSE APPROVES ENTRY OF FOREIGN PROFESSIONALS + DUTERTE WANTS TO REMOVE CUSTOMS BROKERS & CHANGE TAX DUES COMPUTATION
- SEC LEGAL OPINION DIGEST ON APPLICABILITY OF RETAIL TRADE LIBERALIZATION ACT (RTLA) TO IMPORTER & TRADER OF PHARMACEUTICAL PRODUCTS
- SPECIFIC HIGHLIGHTS OF CORPORATE INCOME TAX & RATIONALIZATION ACT (CITIRA) BILL
- TAX & BUSINESS-RELATED NEWS [SEPTEMBER 7-12]
I. SEC LEGAL OPINION DIGEST ON APPLICABILITY OF RTLA TO IMPORTER & TRADER OF PHARMACEUTICAL PRODUCTS
RTLA COVERS ONLY THE SALE OF GOODS FOR CONSUMPTION TO THE GENERAL PUBLIC AS END-USER
The subject corporation engaged in the importation and trading of pharmaceutical products, cosmetics and food products with paid up capital of Php 63,500,000 is seeking clarification on whether or not it is engaged in a wholly or partially nationalized activity under Foreign Investment Act (FIA), and whether it is covered by the Anti-Dummy Law. In rendering the opinion, the SEC referred to the Company’s primary purpose to determine whether the subject corporation is engaged in wholly or partly nationalized activity and in relation to RTLA of 2000. In previous opinions issued by the Commission, the SEC opined that the RTLA covers only the sale of goods for consumption to the general public as end-user. Upon perusal of the subject corporation’s purpose clause and based on its disclosed customers, since it is selling on a wholesale basis and its sales are made to customers who are not the end-users of its product, the SEC opined that it is not deemed to be engaged in RTLA . Further, it is also not subject to foreign equity restriction for domestic market enterprise under FIA since its paid-up capital is more than the threshold of USD 200,000. Consequently, the Anti-Dummy Law does not apply since it is not engaged in a wholly or partly nationalized activity. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO 19-29, AUGUST 28, 2019]
II. SPECIFIC HIGHLIGHTS OF CORPORATE INCOME TAX & RATIONALIZATION ACT (CITIRA) BILL
Last August 14, 2019, the House Committee on Ways and Means approved the Corporate Income Tax and Incentive Rationalization Act (CITIRA) bill to boost government efforts to improve the country’s investment climate. The CITIRA bill, which was principally authored by Congressman Joey Salceda, aims to encourage investments by bringing down the corporate income tax rate, ensure the fairness and transparency of fiscal incentives, and enhance the accountability of taxpayers through refinement of tax administration.
It is part of the administration’s fiscal reform package.
Specific highlights of the bill include:
- Citizen who works and derives income from abroad and whose employment thereat requires him to be physically present abroad for 183 days or more is considered as non-resident citizen.
- Reduction of Corporate Income Tax (CIT) to 28% beginning January 1, 2021, 26% beginning January 1, 2023, 24% % beginning January 1, 2025, 22% beginning January 1, 2027, and 20% beginning January 1, 2029
- Regional Operating Headquarters (ROHQs) shall be subject to regular CIT two (2) years from the effectivity of CITIRA Law.
- Increase of final income tax rate from 7 1/2% to 15% on interest income derived by a resident foreign corporation from a depositary bank under expanded foreign currency deposits system
- Reduction of the limit of deductible interest expense to 29% if CIT is 28%, 23% if CIT is 26%, 16% if CIT is 24%, 9% if CIT is 22%, and 0% If CIT is 20% of the interest income
- Optional Standard Deduction may be availed by corporation classified as Micro, Small and Medium-Sized Enterprise as determined by the Department of Trade and Industry.
- Redefinition of tax-free exchange transactions under Section 40 (C)(2) of the Tax Code covering exchange of property in consideration of shares of stocks, for legitimate and bona fide purpose and not solely for the purpose of avoiding or escaping taxation. No gain or loss shall be recognized to a corporation or on its stock or securities if such corporation is a party to re-organization and exchanges property in pursuance of a plan of re-organization solely for stock or securities in another corporation that is a party to re-organization.
- Definition of re-organization, which replaces merger or consolidation, for purposes of application of tax-free exchange provisions of Section 40 (C) (2) of the Tax Code which includes the following:
a. Acquisition by one corporation, in exchange solely for all or a part of its voting stock, or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation whether or not such acquiring corporation had control immediately before the acquisition.
b. Acquisition by one corporation, in exchange solely for all or a part of its voting stock or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation, or substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other shall be disregarded.
- Sale or exchanges of property used for business for shares of stock shall be exempt from VAT.
- Grants the BIR authority to disregard tax avoidance arrangement in transfer pricing schemes and adjust the taxable income of the taxpayer to counteract the tax avoidance arrangements
- Redefinition of tax avoidance
- Includes the definition of liquidating dividends and its consideration as taxable income or deductible loss
- Discontinuance of the issuance of Tax Credit Certificate (TCC) instead a refund mechanism shall be implemented
- Owners/operators of tricycle owning not more than two (2) units as exceptions to percentage tax
- Increase of threshold from Php 1 Million to Php 10 Million basic tax to be handled by the National Evaluation Board on compromise and abatement
- Waiver for prescription shall not exceed a period of six (6) months at any one time
- Digitization of receipts and invoices through designated electronic channels with a public certification system accredited by the BIR for companies engaged in export of goods and services, e-commerce, and large taxpayers
- Granting of tax incentives to those who will adopt digitization of receipts and invoices. Incentives include tax credits and additional deductible expenses for Electronically Traceable Payments (ETP)
- Increasing the penal provisions for violations of the Tax Code
- Imposition of incremental revenue for tax purposes such as student Vouchers, universal healthcare, and housing vouchers for failing to meet the standard and criteria set by CHED (schools), DOH (hospitals), and NHA (real estate developers), respectively
- Inclusion of new chapter covering all existing Investment Promotion Agencies (IPAs) including review of its performance and functions by Oversight Committee
- Provides income tax incentives to qualified projects and activities identified under the Strategic Investment Priority Plan (SIPP), namely:
- Income Tax Holiday (ITH) which shall not exceed three (3) years.
- Reduced corporate income tax-18% of the taxable income, 17% beginning January 1, 2021, 16% beginning January 1, 2023, 15% beginning January 1, 2025, 14% beginning January 1, 2027, 13% beginning January 1, 2029
- Depreciation allowance of the assets acquired for the entity’s production of goods and services (qualified capital expenditure)-10% for buildings and 20% for machineries and equipment
- Depreciation computed using accelerated depreciation method on a rate not exceeding twice the rate which would have been used
- Up to 50% additional deduction on the labor expense due to an increase of direct local employment
- Up to 100% additional deduction on the increment of research and development incurred provided that it is directly related to the registered activity
- Up to 100% additional deduction on trainings incurred given to employees engaged directly in the entity’s production
- Up to 100% deduction on infrastructure development
- Up to 50% deduction for reinvestment allowance to manufacturing industry within five (5) years from its taxable income
- Enhanced Net Operating Loss Carry-Over (NOLCO) may be carried over as deduction from gross income within the next five (5) consecutive taxable years
- Up to 50% additional deduction on the increment of the domestic input expense provided that it is directly related to the registered activity
- Exemption from customs duty on importation of capital equipment and raw material directly and exclusively used in the registered activity
- For registered enterprises whose export sales meet 90% threshold and are located within an ecozone, freeport, or those utilizing customs bonded manufacturing warehouse:
- VAT exemption on importation of capital equipment and raw materials
- VAT zero-rating on domestic purchases of capital equipment and raw materials used in the manufacturing and processing of products
- For registered enterprises whose export sales are below the 90% threshold but are located within the ecozone, freeport, or those utilizing customs bonded manufacturing warehouse
- VAT exemption on importation of capital equipment and raw materials
- VAT zero-rating on domestic purchases of capital equipment and raw materials used in the manufacturing and processing of products and importation of source documents shall apply.
- For registered enterprises whose export sales are below 90% threshold and are located outside an ecozone or freeport regardless of export sales threshold, the VAT provision in Title IV of the Code and Section 307 shall apply.
- Additional one (1) year ITH and two (2) years incentives for those engaged in agribusiness, those located in less developed areas or recovering from major disasters, and those relocating from urbanized area to other less developed areas
- Establishment of Fiscal Incentives Review Board (FIRB) as well as its functions, powers, and composition
- Limits the grant of fiscal incentives only to registered activities listed in the SIPP
- Grants power to the President to grant incentives in addition to those enumerated above as well as proving longer periods of incentives.
- Provides the criteria for availing the incentives
- Project has a comprehensive sustainable development plan with clear inclusive business approaches and innovations
- Minimum investment of two hundred million US Dollars (US$200,000,000) or a minimum direct employment generation of at least 1,500 within three (3) years from the start of commercial operation
- Provides the qualifications of a registered enterprise for tax incentives.
- Engaged in an activity included in the SIPP
- Install an adequate accounting system that shall identify the investments, revenues, costs and profit or losses of each registered project
- Comply with the e-invoice and e-sales requirement
- Mandatory attachment of Certificate of Entitlement on the Income Tax Return (ITR) or Annual Information Return (AIR). Failure to do so shall cause the forfeiture of the incentive for that taxable period.
- Registered enterprise may continue to enjoy its incentives for two (2) years if they have enjoyed it for more than ten (10) years, three (3) years if they have enjoyed it for between five (5) to ten (10) years, or five (5) years if they have enjoyed it for below five (5) years.
- Enterprises that avail of the ITH shall enjoy its incentives for the remaining period or five (5) years, whichever comes first.
C. TAX & BUSINESS-RELATED NEWS [SEPTEMBER 7-12]
- Duterte pushes for gross taxation system to curb corruption
- FDI pledges prove Citira is not fearsome – DoF
- PEZA chief: Axe not pointed at me
- SSS to ramp up online transactions
- SSS must improve earnings – Dominguez
- House wants lower road tax hike
- PEZA chief firms up stance on CITIRA exemption, denies underperformance
- House approves entry of foreign professionals
- House panel OKs bill reforming real property valuation system
- DOF says 112% hike in FDI pledges dispels fears over tax perk reform
- Asean eyes DOF-backed sugary drink tax eyed as health model
- Duterte wants to remove Customs brokers and change tax dues computation
- PEZA chief: PEZA giving in to Citira dangerous
- House OKs on 2nd reading bill lowering corporate tax, fixing incentives
- Online tax payment facility to save BIR P230 M annually, says DOF
- PEZA appeals anew to Duterte regarding fiscal incentives
- House cuts tax on interest income from savings
Duterte pushes for gross taxation system to curb corruption [Philippine Daily Inquirer, September 12, 2019]
President Rodrigo Duterte proposes a gross income taxation system over net tax collection which he believes will help curb corruption in the government.
FDI pledges prove Citira is not fearsome – DoF [Manila Times, September 12, 2019]
THE high number of foreign investment pledges in the first half of the year proves that investors do not fear the proposed reduction of corporate income tax (CIT) and rationalization of incentives under the government’s Comprehensive Tax Reform Program (CTRP), a senior official of the Department of Finance (DoF) said.
PEZA chief: Axe not pointed at me [Manila Times, September 12, 2019]
The chief of the Philippine Economic Zone Authority (PEZA) didn’t feel alluded to by President Duterte who recently warned of firing a female official in an economic agency for poor performance.
SSS to ramp up online transactions [Manila Bulletin, September 12, 2019]
State-run Social Security System (SSS) will further enhance its electronic service delivery as it targets to triple online transactions to 32.2 million in 2020 to reduce the pension fund’s overhead expenses and more convenience to pensioners.
SSS must improve earnings – Dominguez [Manila Bulletin, September 12, 2019]
The Department of Finance (DOF) said yesterday issued a strong call on the Social Security System (SSS) to further strengthen its financial standing by improving the quality and performance of its investments as growth in pensioners could soon wipe out its fund.
House wants lower road tax hike [Philippine Star, September 12, 2019]
The House of Representatives is rejecting the Department of Finance (DOF) proposal for an increase of more than 300 percent in the road user’s tax, which the government collects from motor vehicle owners.
PEZA chief firms up stance on CITIRA exemption, denies underperformance [Philippine Star, September 12, 2019]
Despite rumors she would be removed by President Duterte from her post due to poor performance, the chief of the Philippine Economic Zone Authority is sticking to her position that the PEZA must be excluded from the coverage of the proposed rationalization of fiscal incentives being pushed by the administration.
House approves entry of foreign professionals [Philippine Star, September 11, 2019]
Foreign doctors, lawyers, engineers, accountants, and other professionals may soon be allowed to render their services in the Philippines.
House panel OKs bill reforming real property valuation system [Philippine Daily Inquirer, September 11, 2019]
The House ways and means panel approved on Wednesday the third package of the Duterte administration’s tax reform program which will amend the country’s outdated real property valuation system.
DOF says 112% hike in FDI pledges dispels fears over tax perk reform [Philippine Daily Inquirer, September 11, 2019]
A more than 100 percent increase in foreign direct investment (FDI) pledges in the first half of 2019 should dispel fear that investors overseas are being put off by the Duterte administration’s bid to phase out tax perks of companies that no longer qualify for the incentives, according to a Department of Finance (DOF) official.
Asean eyes DOF-backed sugary drink tax eyed as health model [Philippine Daily Inquirer, September 11, 2019]
Association of Southeast Asian Nations (Asean) member nations have hailed the Philippines’ excise tax on sugar-sweetened beverages under the tax reform program of the Duterte administration as a case of successful fiscal policy intervention that aims to attain the group’s goal of nurturing a healthier society in the region, according to the Department of Finance (DOF).
Duterte wants to remove Customs brokers and change tax dues computation [Philippine Star, September 11, 2019]
President Rodrigo Duterte called for a shift in the way tax dues are computed and the elimination of Customs brokers to address corruption in government revenue agencies.
PEZA chief: PEZA giving in to Citira dangerous [Manila Times, September 9, 2019]
THE Philippine Economic Zone Authority (PEZA) is not backing down in its fight to be exempted from the proposed Corporate Income Tax and Incentive Rationalization Act (Citira), arguing that yielding to the bill would be “dangerous.”
House OKs on 2nd reading bill lowering corporate tax, fixing incentives [Philippine Daily Inquirer, September 9, 2019]
The House of Representatives on Monday night approved on second reading a bill seeking to reduce the corporate income tax (CIT) rate and rationalize incentives for businesses.
Online tax payment facility to save BIR P230 M annually, says DOF [Philippine Daily Inquirer, September 9, 2019]
A digital tax payments system recently launched by the Bureau of Internal Revenue (BIR) using the PESONet electronic funds transfer service will save the government an estimated P230 million a year in transaction fees for taxes paid online.
PEZA appeals anew to Duterte regarding fiscal incentives [Philippine Star, September 9, 2019]
The Philippine Economic Zone Authority (PEZA) is appealing to President Duterte to exclude the investment promotions agency (IPA) from the rationalization of fiscal incentives under the Corporate Income Tax and Incentive Rationalization Act (CITIRA) bill, saying that the proposed changes to tax perks would make the country less attractive to investors.
House cuts tax on interest income from savings [Philippine Star, September 8, 2019]
The House of Representatives has reduced the 20 percent final tax on interest income to 15 percent.
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