THE TAX REFORM FOR ATTRACTING BETTER AND HIGHER QUALITY OPPORTUNITIES

(TRABAHO) IS FOCUSED ON TWO THINGS:

(1) to bring in more investments by lowering the tax rate for businesses,
otherwise known as the corporate income tax rate (CIT)
Cut corporate income taxes by 2 percentage points per year starting 2021,
eventually bringing down the current 30% to 20% by 2029

Corporate Income Tax

30

20

10

0
2018 2021 2023 2025 2027 2029
 Since the Philippines has one of the highest corporate tax rates in Southeast
Asia. Currently, the corporate tax is 30%, which is applied to all net incomes from the
entire tax table sources. Compared to other countries in the region. Deducting CIT Is
Expected To Give Businesses More Capital To Grow And Expand Their Business, And
Also Hire More Workers In The Process — A Million Jobs Over The Medium Term,
According To The Department Of Finance (DOF).
 According to the Department of
Finance (DOF), this second package of
the TRAIN law isn’t just aimed at
cutting down corporate taxes, but it is
also designed to achieve the following:
Benefit more
than 95 Provision for a
percent of sunset period
Simplify an businesses in and new
Make the
overly complex the country incentives for
Minimize incentive
corporate tax that are current
“special system more
system to paying the players that
treatment” inclusive and
improve highest expand their
fair.
compliance. corporate businesses or
income tax adopt new
rate in the technology.
region.
 (2) to update the rules on tax incentives given to corporations to
make it more fair, competitive, and to increase tax revenue.

Rationalize fiscal incentives to make it more:

performance-
targeted transparent time-bound based.

The government admitted that incentives are needed to attract investments that support
the country's industries. These investments must create better jobs, promote research and
development, encourage innovation, stimulate local industries, and diversify product
space.
Other than the country’s corporate taxes being the highest in the region, the
current incentive system is also very complex and isn’t efficiently implemented.
According to data, there is a huge inequity under the current system:

• Firms with no incentives pay the regular rate of 30% of net taxable income
• Firms with incentives pay between 6% and 13%

This inequity may be represented by the number of SME’s paying the regular
30% corporate tax rates, meanwhile, in the current corporate tax system, bigger
businesses easily thrive due to tax incentives.

Out of the 915,000 registered firms in 2015, 2,844 firms were granted
incentives. The government estimated P301 billion in foregone revenues due
to the tax exemptions.

The government admitted that incentives are needed to attract investments

that support the country's industries. These investments must create better
jobs, promote research and development, encourage innovation, stimulate
local industries, and diversify product space.
 Additionally, despite giving the most generous incentives to more than 650
firms, Foreign Direct Investment still pales in comparison to neighboring
regions and Export competitivens has been declining

“To further drive exports up, we are looking at

continuously increasing market access for
Philippine products and reforms to improve
productivity and lower production costs,”
Socioeconomic Planning Secretary Ernesto M.
Pernia said in a statement

To support the export industry in the country, the

NEDA chief said that it is crucial to pass the
amendments to the Public Service Act, the Foreign
Investment Act, and Retail Trade Act.

“With the passage of these reforms, we can

leverage the Philippines’ attractiveness to both
foreign and local investors. These investments can
help our industry to improve production efficiency
and product diversification,” Pernia added.
There are 14 investment promotion
agencies in the Philippines which are The 12 others are the
authorized to grant tax incentives 1. Cagayan Economic Zone Authority (CEZA)
under their respective charters. 2. Freeport Area of Bataan (FAB)
3. Phividec Industrial Authority (PIA)
4. Clark Freeport and Special Economic
Biggest Zone (CFEZ)
5. John Hay Management Corporation
among (JHMC)
them Board of 6. Aurora Pacific Economic Zone and
Investments Freeport Authority (APECO)
(BOI) 7. Bases Conversion and Development
Authority (BCDA)
8. Poro Point Management Corporation
(PPMC)
Philippine 9. Subic Bay Metropolitan Authority (SBMA)
Economic 10.Zamboanga Freeport Authority (ZFA)
Zone Authority 11.Bataan Technological Park Incorporated
(PEZA) (BTPI)
12.and Philippine Retirement Authority (PRA).
The income tax holiday (ITH) is the centerpiece among all
the incentives, followed by the 5% gross income earned
(GIE) tax and customs duty exemption. The GIE is given
indefinitely and is in lieu of income, value-added tax (VAT),
and local taxes.

Other incentives enjoyed by select industries include tax

investment allowances; higher deductions for research and
development, training, and labor; net operating loss
carryover; customs duty exemptions; and export subsidies.
 According to the Department of Trade
and Industry (DTI), micro, small, and medium
enterprises (MSMEs) account for 99% of total
MSMEs, TRABAHO bill
businesses in the country — around 925,000
benefits will include
Filipino enterprises. Based on data from the
• saving more money from
DOF, nearly 90,000 small and medium
paying less taxes.
businesses pay the regular income tax.
• It is hoped that this will
entice them to grow their
With nearly a million small businesses all over
business, innovate,
the country, MSMEs contribute a third of the
expand, as well as hire
Philippines’ total employment. According to the
more local workers.
DTI, MSMEs generated a total of 4.9 million jobs
in 2017 versus 2.9 million for large corporations.
https://www.pna.gov.ph/articles/1072039

https://www.philstar.com/headlines/2019/07/22/1936831/law
makers-file-new-versions-trabaho-bill

https://mybusinessacademy.ph/resources/trabaho-bill-small-
and-large-businesses/

https://www.bworldonline.com/phl-urged-to-review-trabaho-bill-to-
ensure-competitiveness-tmap/

https://news.abs-cbn.com/business/07/18/19/trabaho-bill-
could-lead-to-job-losses-exporters-fear

https://www.philstar.com/the-
freeman/opinion/2019/06/04/1923544/why-or-way-trabaho-bill

https://www.rappler.com/newsbreak/in-depth/208513-
explanation-why-government-pushing-for-tax-reform-law-2nd-
package