State think tank cautions on sudden cut in corporate income tax

MANILA, Philippines — Abruptly trimming corporate income tax rates may erode state revenues and disrupt the country’s bullish growth story, the National Tax Research Center warned.

“Lowering of the CIT rate will result in substantial revenue loss that may jeopardize or put at risk economic growth or reverse whatever gains the Philippines has achieved so far in terms of macroeconomic stability,” the NTRC said in its latest journal.

House Bill 7458 provides for graduated cuts in the corporate income tax rate from the current 30 percent to 20 percent, as well as the modernization of investment incentives by ensuring that only qualified industries are given fiscal perks.

Corporate tax reform comprises Package 2 of the Duterte administration’s Comprehensive Tax Reform Program.

According to the NTRC, gradually cutting the CIT is “more judicious” than outright reduction to cushion the impact of the proposal on state coffer.

“It is also worthwhile to consider putting a trigger or condition to the reduction so as not to unduly affect the government’s basic financial metrics and cash flow,” it said.

Meanwhile, the NTRC said Southeast Asian countries “race to the bottom” in terms of offering the most generous incentives in exchange for investments, which led to the grant of “redundant” perks and proliferation of “wasteful tax incentives.”

“The proposed reform of fiscal incentives under Package 2 of the CTRP is a welcome move to enhance the governance of fiscal incentives in the country,” it said. — with a report from BusinessWorld