DOF Presents Details of TRABAHO Bill at ICCP’s General Membership Meeting

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  • 20 Nov 2018
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  • ICCP
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Businesses operating in the Philippines would do well to learn as much as they can about the proposed Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill, and how this can benefit their current or planned business. The bill was one of the highlights of the Israel Chamber of Commerce of the Philippines’ (ICCP) 22nd General Membership Meeting – the last for 2018 – at the Dusit Thani Hotel last November 8, 2018.

The Need for TRABAHO Bill

Department of Finance Undersecretary Karl Kendrick Chua, in his keynote speech, said that the goal of the bill is to gradually decrease the country’s corporate income tax (CIT) from 30 percent to 20 percent until 2029, in increments of two percent every two years. It also aims to rationalize investment incentives.

Chua stressed the need to pass the bill to help local businesses and those operating locally. He told attendees of the GMM that the Philippines currently has the highest CIT in the ASEAN region and that the Philippines has a highly complex and unjust tax incentive system. Despite granting the most generous and “perpetual” fiscal incentives, the current system has a major inequity.

For instance, firms with incentives pay a tax of between 6 and 13 percent of their net taxable income, while companies that do not qualify for incentives have to pay the regular rate of 30 percent. Sadly, nearly all of the 90,000 small and medium enterprises (SMEs) pay the regular rate.

On top of that, the current system has not been beneficial for the Philippine economy, he said. The country’s export competitiveness has been in decline, and foreign direct investment (FDI) in the country pales in comparison to its neighbors.

Chua remarked that the TRABAHO bill would make the tax incentive system fairer and more accountable.  Every peso granted as tax incentive is a peso off the budget, which the government could use for infrastructure, social protection, education, and health that benefit everyone and not just a few, he added.

The Bill’s Menu of Incentives

Among the incentives that the TRABAHO bill will introduce are:

  • Income Tax Holiday (ITH) of up to three years plus one-year extension if investing in less developed areas, in agribusiness, or if relocating outside Metro Manila and neighboring urban areas
  • Additional deductions for R&D training, labor expense, country-wide infrastructure development, reinvestment allowance to the manufacturing industry, and domestic input expense
  • VAT incentives to registered enterprises that are within a freeport or ecozone, and whose exports meet the 90 percent of sales threshold
  • Additional two years of incentives for projects situated in less developed areas or locations recovering from a major disaster or armed conflict, agribusiness projects of registered enterprises located outside Metro Manila and urban areas, and registered activities moving out of Metro Manila and selected urban locations

 

Modification of Existing Incentives

Besides introducing new incentives, the TRABAHO bill contains a sunset provision for existing incentives. Registered business entities (RBEs) which took advantage of the ITH may continue to do so for five years or until the remaining period ends, whichever comes first. Additionally, RBEs enjoying the existing five percent gross income earned (GIE) may continue depending on the number of years they’ve been enjoying it. Chua encouraged investors and interested individuals to visit the DOF website for further information on the TRABAHO bill.

For those who are interested in signing up with ICCP or finding out more about being a member, visit our membership page.