Lower corporate income tax to give firms some cushion

Companies can better cope with the difficult economic tide next year due to the lowering of the corporate income tax rate to 30 percent from 35 percent as part of the implementation of the Reformed Value Added Tax (RVAT) law, the chief of the National Economic Development Authority (NEDA) said yesterday.

NEDA Director General Ralph Recto said this provision would give companies enough incentive to retain their workers.

“This gives companies incentives not to fire people,” he said as he allayed fears that there would be job losses and lay-offs next year.

Earlier, a survey by the influential Makati Business Club said that businessmen fear that a recession would hit the country next year which could lead to job losses and layoffs.

The RVAT law raised the sales tax to 12 percent from 10 percent and lifted exemptions on oil and petroleum products. It also increased the minimum corporate income tax to 35 percent from 32 percent, but this would be reduced to 30 percent starting 2009.

Aside from the reduction in corporate income tax, companies are also now enjoying an increase in the tax exemption of employees.

The implementation of Republic Act 9504 started in July. The law exempted minimum wage earners from tax payments and increased the personal exemptions of regular income earners.

As such, Recto said companies should not be resorting to layoffs and downsizing despite the global financial turmoil as they are already given enough support through the implementation of the two measures.

He also believes that government spending would help keep the economy afloat.

“The government accounts for 20 percent of the economy,” he said, adding that economic managers would step-up measures to ensure that agencies boost their spending.

Additional spending, he said, would help pumpprime the economy, Recto noted.