CITIRA:  A fair deal for business, a winning deal for Filipinos

Sponsorship speech of Senator Pia S. Cayetano

Chairperson, Committee on Ways and Means

February 19, 2020

 

Mr. President, distinguished colleagues, today, I rise to sponsor and seek your support for Senate Bill No. 1357, per Committee Report No. 50, also known as the CITIRA bill, which has 2 main objectives:

 

(1) lowering the corporate income tax rate; and (2) modernizing the tax incentive system, making it more fair, efficient, and accountable.

Mr. President, from the onset let me clarify a major issue. A major source of resistance to this bill is the fear that incentives will be removed once this measure is enacted. This will not be the case, Mr. President. In truth, what we intend to do is to continue a sound incentives scheme, the details of which this representation will explain as we go along.

 

Having said that, allow me to start with a bit of history. 

I am sure that both Senate President Sotto and Senate Minority Leader Drilon, the leaders of both sides of this chamber, would also know from their experience that ever since a bill on rationalizing tax incentives was first proposed in 1995, the Department of Finance and the Department of Trade and Industry have urged Congress to finally make this crucial reform happen.

But even further down memory lane, when I was a college student in the school of Economics of the University of the Philippines, my father, the late Senator Rene Cayetano, was a member of the Batasan and was appointed as the Deputy Minister for Trade and Industry Administrator of the Export Processing Zone Authority otherwise known as EPZA. I had the opportunity to visit the export processing zones in Bataan, Baguio, and Cebu. In fact, my thesis was on fiscal incentives. This was in 1985.

And here we are today in the year 2020. 

Mr. President, in the series of hearings and meetings we conducted, we gave members of the business community, civil society, the academe, government, and business associations the opportunity to share their views in depth. The DOF and the DTI also held their own briefings with key stakeholders. The bill before us is a new and fairer deal between businesses and the Filipino people.

So where are we now and what are we doing? 

We are cognizant that Philippine enterprises are the backbone of the economy and that they contribute to national development by supplying much-needed employment and livelihood. And yet, companies doing business in the Philippines are slapped with a 30 percent corporate income tax rate, the highest in the region.

To address this, we will bring down the Corporate Income Tax rate from 30% to 20% over the next ten years. This should result in some 1.5 million more jobs, a feat I am certain we can accomplish, inso far as we have already provided millions of jobs to the economy. We believe that the reduction of 1% per year, is the pace that does not compromise the country’s vital fiscal resources.

However, Mr. President, we cannot talk about the corporate tax regime without earnestly discussing the tax regime for companies that have received unreviewed, and almost unconditional special tax treatment for decades.

 

From 2015 to 2017, the Philippine government granted more than one trillion pesos in tax incentives in the form of exemptions and tax discounts to various companies. In 2017 alone, the government granted billions of pesos to a select group of some 3,150 businesses. These companies pay an effective rate of 6 to 13 percent of Corporate Income Tax as opposed to other enterprises that pay the regular 30 percent Corporate Income Tax.

Let me make this clear again, I mention the amount of incentives, Mr. President, not to say that we will scrap them. All we want to do is rationalize them.

Incentives should not be given out to any corporation without the proper conditions. They should be performance-based and targeted, and granted in such a way that would benefit the public – by way of providing employment, boosting needed industries, and promoting the growth of less-developed areas in the country.

When we give out incentives on behalf of the people, then we are duty-bound to ascertain that we get what is rightly due to them. That is the essence of this bill: a fair deal for all, and the best deal for Filipinos.

My point, Mr. President, is that true incentives yield results, like the situation with our neighbors, Singapore and Malaysia. If a tax perk is given, without a clear set of conditions, without a time limit, and without adequate oversight, it’s not an incentive. It is a giveaway, and this country cannot afford corporate giveaways.

 

The billions of incentives we granted are equivalent to more than 10 percent of our 2020 national government budget, around 80 percent of DEPED budget, and more than four times the amount allocated to the Department of Health.

 

So let’s discuss tax incentive principles 

With billions of pesos on the line, we need to ensure that the incentives which the government provides are in accordance with the following principles based on international good practices:

 

  1. Performance-based: There should be clear attainment of actual investment, job creation, export, country-side development, and research and development commitments, else incentives will only be wasted. Parang scholarship grant, dapat may resulta, pasado sa exam at maka-graduate.
  2. Targeted: To minimize leakage and to avoid spreading our scarce resources too thinly, tax incentives should be given to activities with significant positive contribution to the economy, or those that really matter for the future, as specified in a strategic investment priority plan (SIPP), to be determined by the Board of Investments (BOI).
  3. Time-bound: There should be a reasonable timeframe for the enjoyment of incentives, and an extension period for companies that perform and contribute to the economy. Parang allowance na binibigay ng magulang sa anak, hindi pwedeng habang-buhay; and
  4. Transparent: Monitoring and evaluation of tax incentives should be institutionalized and reported by the government to the public. Yung pinaghirapang buwis ng ordinaryong taxpayer ang ginagamit nating pampondo sa incentives, kaya nararapat lamang na alam ng taumbayan kung saan napupunta ang buwis niya.

 

And let me add another principle: the incentive system should also be governed well. Currently, there are 13 different investment promotion agencies, or IPAs, each with its own charter and mandate, that offer different menus of incentives to various industries, sometimes not in line with national priorities, and often without the DOF or DTI knowing. As a result, there is no one simple set of incentives that the country may promote to potential investors. This can be very confusing and definitely not investor-friendly.

 

Another concern is that the number of industries that could potentially get incentives from these IPAs, which is some two-thirds of the economy, also makes our incentive system indiscriminately open to just any activity, and thus open to abuse.

 

This representation thus proposes that there be: (1) a set of incentives for different projects or activities, depending on the location and industry, and (2) incentives that shall be based on the Strategic Investment Priority Plan (SIPP), which will be determined by the BOI, in coordination with the Fiscal Incentives Review Board, IPAs, government agencies administering tax incentives, and the private sector. We also propose to expand the functions of the Fiscal Incentives Review Board, a body that currently grants incentives to government-owned or controlled corporations, to also approve all incentives given to private companies, as recommended by the IPAs. We also recommend this board to oversee the IPAs. This much-needed governance reform is at the heart of the CITIRA bill.

Before I proceed with more details of the proposed bill, allow me to acknowledge the work of some of our predecessors such as Senator Recto, who filed the first Fiscal Incentives Review Board expansion bill in 2001 and Senator Drilon, who authored the Tax Incentives Management and Transparency Act, or the TIMTA Law, passed in 2015. The law mandates companies to provide the government with data to estimate the tax incentives they receive, which is now being used to objectively assess our tax incentives. Both senators, along with Senators Lacson and Villar, have also filed in previous congresses bills on fiscal incentives rationalization. We are now building on their ideas to move the reform forward.

 

I would also like to put on record that our team painstakingly took the time to ease the transition period for investors and minimize the drastic changes the new incentive scheme could bring to their businesses.

 

Let me now discuss the salient points of the reform as proposed by this representation.

 

Reduction in the corporate income tax rate 

As mentioned earlier, the corporate income tax rate shall be lowered gradually by one percent every year, from the current 30 to 20 percent by 2029.

We have made the reduction of corporate income tax automatic in our version for the first five years to ensure predictability. By 2025, the reduction can be suspended by the President upon recommendation of the Secretary of Finance, if the projected deficit target as a percent of GDP exceeds the programmed deficit.

 

Modernization of the fiscal incentive system 

The centerpiece of the country’s current tax incentives regime is the income tax holiday or ITH for 4 to 6 years, and the special 5 percent tax on gross income earned, or GIE, in lieu of all taxes, both national and local.

 

The 5 percent tax on GIE is granted forever without conditions, even if the firm does not contribute to the economy in terms of jobs and exports at a level commensurate to the amount of incentives given. Colleagues, no other country gives incentives forever.

 

Dear colleagues, it is time to end a regime that distributes costs to many, and concentrates benefits to a few.

 

Sunset provisions 

After listening to the concerns and apprehensions of existing investor groups that will be affected by this bill, we came up with terms that address their request for a smoother transition period. This addresses our objective, which is to keep companies and investors here in the country while rationalizing the incentives that we give them.

 

For those granted ITH only 

Existing registered activities granted the income tax holiday shall be allowed to complete the remainder of their ITH period.

For those granted 5% GIE but not yet enjoyed

These are the firms with unfinished ITH and a succeeding Gross Income Earned (GIE) of 5%. In their case, their ITH will be allowed to expire on schedule and will be followed by a 5% GIE, with a maximum of 5 years. If the firm has no ITH but is about to go into 5% GIE, they will also enjoy 5% GIE, for a maximum of 5 years.

Granted and currently enjoying 5% GIE forever 

Existing registered activities that were granted the 5 percent tax on GIE, in lieu of all taxes, will be allowed 2 to 7 more years as a transition period, while paying the same rate of 5 percent GIE. The duration of the proposed transition period is as follows:

  • 2 years for those who have been receiving the GIE incentive for more than 10 years;
  • 3 years for those who have been receiving the GIE incentive for between 5 and 10 years;
  • 5 years for those who have been receiving the GIE incentive for below 5 years, and
  • A special 7 years for those that meet any of the following conditions:
  1. Exporting 100 percent of their goods and services, b. Employing at least 10,000 Filipino workers, or c. Engaging in highly footloose activities. And in addition Mr. President, after the sunset period, they will still be allowed to apply under the new incentive package where they will be assessed by virtue of the new package of this bill.

 

What is the new incentives package? 

Under our version of CITIRA, a registered activity may be granted an income tax holiday of 2 to 4 years, followed by a Special Corporate Income Tax (SCIT) rate, that is based on Gross Income Earned (GIE). The Special Corporate Income Tax Rate will be equivalent to 8% GIE for 2020, 9% for 2021, and 10% for 2022 and onwards.

 

Like the current system, this shall be in lieu of all other taxes, and can be availed for 3 to 4 years, depending on the location and activity. This provision preserves the one-stop shop nature of present incentives. We hear the concerns of investors that they do not want to deal with many government agencies when paying taxes. This is why we retained the “in lieu of” provision and one-stop-shop. Based on my discussion with the firms, this particular provision already addresses 90 percent of their concerns.

 

The initial availment of tax incentives, which includes Income Tax Holiday plus the Special Corporate Income Tax Rate is from 5 to 8 years, depending on the category of the registered activity as indicated on the screen. There are three categories: basic, enhanced, and advance. This is our response to the need to make incentives more targeted to locations that need them and industries that we want to promote.

Duration of income tax holiday (ITH) and Special Corporate Income Tax (SCIT), per category 


There is more good news in our version. The availment of Special Corporate Income Tax may be extended by 3 to 4 years at a time or more than once, up to a maximum of 12 years, depending on the category, so long as the firm remains true to its performance commitments.

In lieu of the Special Corporate Income Tax, the registered activity may instead be granted the enhanced deductions shown on the screen subject to the regular prevailing corporate income tax rate. These enhanced deductions incentivize good behavior, such as local job creation, exports, and investment in hi-tech. As proposed by the DTI, our enhanced deductions menu was expanded to include deductions for power costs to account for the country’s challenges in this area. The expanded deductions list is shown on the screen.

Like the ITH and Special Corporate Income Tax (SCIT), the availment of enhanced deduction may be extended also for up to 12 years.

 

To attract the biggest investors, like what Vietnam did with Samsung, the President may give incentives for a longer period of up to 40 years for highly desirable projects, provided that the benefit that the public could derive from such investment is clear and convincing and far outweighs the cost of incentives that will be granted.

 

Governance of fiscal incentives 

To ensure that incentives granted are performance-based, time-bound, targeted, and transparent, the present Fiscal Incentives Review Board’s function is expanded so that it can provide proper oversight over the IPAs, in the same way that the GCG law of 2011 created the Governance Commission on GOCCs to oversee the GOCCs and ensure better performance and accountability.

Under our proposal, the Board will be chaired by the DOF and co-chaired by the DTI, with representatives from the Office of the President, DBM, and NEDA.

 

Let me assure all the officials and employees of the IPAs that we are not abolishing your agencies or cutting down your jobs. IPAs will continue to perform their function of promoting investments in the Philippines, receive and process applications, and recommend to the Fiscal Incentives Review Board worthy incentives for approval by the Board. None of you shall lose your jobs because of this reform. Sec. 9 of Senate Bill No. 1357 provides: The IPAs shall maintain their functions and powers as provided under the special laws governing them except on the approval of incentives.

 

Mr. President, esteemed colleagues, allow me to underscore one final point, and this is the urgency of our task ahead. Let us end the uncertainty.

 

As an economics graduate, Mr. President, I was trained to think of resources, including our fiscal space, as limited. With limited fiscal resources, from the hard work of our countrymen, we must ask ourselves the following questions as we deliberate on this measure:

 

  1. Should we cut taxes for the many, or should we keep conditions loose for the few?
  2. Should we move incentives towards Philippine labor and Philippine products, or should we continue privileges that have gained our economy little value-added?
  3. When we spend our country’s fiscal resources, do we prefer more accountability, or less?

 

On these basic questions of principle, I trust that this Senate of the People has seen the merits of this reform.

 

Further, as part of our commitment to the United Nations 2030 Agenda for Sustainable Development, all efforts must be exerted to achieve the Sustainable Development Goals (SDGs) by 2030. This is the ideal future, a future where there is no poverty, and where our people and economy thrive.

Rationalizing incentives and lowering the corporate income tax will bring in more investments and provide more jobs for Filipinos. This ensures we remain on target with SDG 8, which promotes decent work and economic growth; SDG 9, promoting inclusive and sustainable industrialization and fostering innovation; and of course, SDG 1, which calls for ending poverty in all its forms. This is only the beginning, as working on just one SDG creates a ripple effect on all the other SDGs, especially on hunger, health, education, and equality. A flourishing economy driven by the Filipino people will safeguard the country’s future, even beyond 2030.

 

Dear colleagues, you have appointed me to be chair of the ways and means committee and trusted this representation to study the matter and make recommendations. I humbly ask that you review these proposals, keeping in mind that the greater majority will benefit from the lowering of the corporate income tax and that a rationalized incentives scheme that rewards investments that are result-based will lead to greater prosperity for our nation.

 

Thank you, Mr. President. 

Pia bats for ‘fair, efficient, accountable’ CITIRA

“A fair deal for all. The best deal for Filipinos.”

This was how Senate Ways and Means Chair Pia S. Cayetano described Senate Bill No. 1357, or the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA) which she sponsored in plenary on Wednesday.

CITIRA seeks to reduce the corporate income tax (CIT) rate in the country, which is currently among the highest in the ASEAN region, and reform the fiscal incentives system to make it more fair, efficient, and accountable.

Under the bill, the country’s CIT rate will be gradually lowered by one percent every year, from 30 percent to 20 percent by 2030.

The measure will also rationalize fiscal incentives given to firms to make these “performance-based, time-bound, targeted, and transparent.”

The bill intends to prioritize incentives to business activities that generate domestic employment; promote research, development and innovation; promote agribusiness; and invest in areas that are less developed or are recovering from disasters and conflicts, among others.

CITIRA shall likewise offer additional tax deductions to reward corporations’ good behavior, such as local job creation, exports, and investment in high technology.

Meanwhile, the committee is also proposing to implement sunset provisions for firms currently enjoying fiscal incentives to help them transition to the new tax regime under CITIRA.

“After listening to the concerns and apprehensions of existing investor groups that will be affected by this bill, we came up with terms that address their request for a smoother transition period. This addresses our objective, which is to keep companies and investors here in the country while rationalizing the incentives that we give them,” the senator stressed in her speech.

Furthermore, the measure seeks to expand the functions of the Fiscal Incentives Review Board (FIRB), which presently grants incentives to government-owned or controlled corporations. If passed, CITIRA shall mandate the FIRB to approve all incentives, including those given to private companies, as recommended by the different Investment Promotion Agencies (IPAs).

“Currently, there are 13 different IPAs… that offer different menus of incentives to various industries, sometimes not in line with national priorities… There is no one simple set of incentives that the country may promote to potential investors,” Cayetano stressed.

Lastly, the measure allows the Philippine President to grant incentives for a longer period of up to 40 years for highly desirable projects, as long as they will primarily benefit the Filipino public.

“This is the urgency of our task ahead. Let us end the uncertainty (in the business community) by passing CITIRA” Cayetano said. #

Download Sen. Pia Cayetano’s presentation here: CITIRA sponsorship speech ppt

Pia welcomes President’s signing of the Sin Tax Law

We welcome President Rodrigo Roa Duterte’s recent signing of the Sin Tax Reform Law, which raises the excise taxes imposed on alcohol and e-cigarette products.
The enactment of this measure is a manifestation of the administration’s full commitment to its mandate of protecting public health and welfare.
As Chairperson of the Ways and Means Committee, I had pushed for substantially higher sin tax rates under my sponsored Senate bill, to be able to meet the funding requirements for universal health care and to effectively deter the consumption of these harmful products.
Nonetheless, I remain confident that the law’s passage is a good step forward to discourage Filipinos, especially the youth, from taking up dangerous vices, thereby guiding them towards making healthier lifestyle choices.
Moreover, the revenues to be collected from this measure will go a long way in ensuring our people’s access to free and quality health care services. I thank our colleagues in the DOH and DOF, Congress, and pro-health allies for contributing to this landmark legislation. #
Cayetano: The law’s passage is a step forward to discourage Filipinos, especially the youth, from taking up dangerous vices, including drinking and vaping.

Pia on e-cigarettes: ‘Less harmful’ does not mean ‘safe’

If there was one clear takeaway from the Senate’s latest committee hearing on proposals to raise ‘sin’ taxes, it’s that electronic cigarettes (e-cigs) are “definitely” not safe and could pose risks to people’s health, Committee on Ways and Means Chair Senator Pia S. Cayetano asserted. 

The panel on Thursday (September 5) conducted its third public hearing on proposals to increase excise taxes on alcohol and e-cigarette products under Package 2+ of the Comprehensive Tax Reform Program or CTRP. 

The hearing, which focused on e-cigarettes, invited officials from industry, who expounded on the position that heated tobacco products (HTPs) and vape products are “less harmful” than conventional cigarettes. 

On the other side, various health experts, including officials from the Department of Health (DOH), the World Health Organization (WHO), and the Philippine College of Physicians (PCP), refuted industry claims, saying there is not enough evidence to prove that e-cigs are indeed safer for human health. 

WHO’s Country Representative to the Philippines, Dr. Rabindra Abeyasinghe (OIC), even likened using conventional cigarettes to jumping off a 10-storey building, whereas using e-cigarettes would be like jumping off a six-storey building. Either way, she said, the use of such products is “inherently toxic.” 

Both sides cited different studies and experiences from other countries, such as the United States, Japan, and the United Kingdom, where e-cigarettes have been commercially available longer than in the Philippines, and where extensive studies have been conducted on the impact of these products on people’s health. 

“One thing that I am prepared to say now is, [there’s no truth to such claims that e-cigarettes are safe]. Para sabihin mong less harmful, well, then what is the degree of harm that is acceptable?” Cayetano stressed.

Summing up the discussions after the hearing in a briefing with media members, the senator added that despite the authorization granted by the United States Food and Drug Administration (US FDA) to e-cigarette companies to market and sell e-cigs in the US, the latter were still not authorized by the regulatory agency to claim that their products are a “safer alternative” to conventional cigarettes. 

“There is no statement from the (US) FDA that it is safe. So let’s be clear about that. Nililinlang naman natin ang mga tao kapag sinasabi nating safe. Pati ang WHO, walang sinabi na safe ‘yan,” Cayetano said. 

Furthermore, the senator said one of the primary objectives in raising taxes on these products is to make sure that they don’t become readily accessible to children and young people, whom she said are the most vulnerable to e-cigarette use. 

“Suddenly, this tool that the industry is trying to promote as an alternative to smoking is now being taken up by young people who do not even smoke,” Cayetano pointed out during the hearing.

“I would like to hear from the industry how they intend to market their products, because I saw very disturbing modes of marketing [targeting the youth],” she added. 

The Ways and Means Committee is set to continue discussions on the tax measures on Wednesday (September 11). #

Senate Ways and Means Chair Pia Cayetano on taxing e-cigarettes as ‘sin’ products: You may claim that these are ‘less harmful’ but this is not equivalent to being ‘safe.’

Senate ways and means panel holds first hearing

Senate Ways and Means Committee Chair Pia S. Cayetano is set to lead the body’s organizational meeting on Thursday (August 15) to discuss an overview of the government’s tax reform measures.

The meeting will focus on the Comprehensive Tax Reform Program (CTRP), a primary component of the Duterte government’s strategy to achieve its growth targets under AmBisyon 2040, and the United Nations’ Sustainable Development Goals (SDGs). 

Resource persons from different government agencies were invited, including officials from the Department of Finance (DOF); Department of Budget and Management (DBM); Department of Health (DOH); Department of Trade and Industry (DTI); Department of Labor and Employment (DOLE); Department of Environment and Natural Resources (DENR);

The National Economic and Development Authority (NEDA); Bureau of Internal Revenue (BIR); Bureau of Customs (BOC); Bureau of Local Government Finance (BLGF); National Tax Research Center (NTRC); Housing and Land Use Regulatory Board (HLURB); and Bangko Sentral ng Pilipinas (BSP). 

The department officials are expected to discuss President Rodrigo Duterte’s 10-point socioeconomic agenda, in relation to pursuing the remaining tax reforms under CTRP, following the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Law in 2017.

The remaining packages include the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill, also known as Package 2, which seeks to lower the corporate income tax (CIT) and rationalize the tax incentives given to businesses in the country.

An additional component of the second package is the Sin Tax Reform bill (Package 2+), which seeks to impose higher excise taxes on alcohol products and e-cigarettes. 

Cayetano said Package 2+ is an important health measure that will not only discourage the consumption of unhealthy products among Filipinos, but will also help fund the government’s Universal Health Care (UHC) Program.

The other CTRP proposals will also be generally discussed during the hearing, which include reforming the property valuation system (Package 3); and rationalizing capital income taxation (Package 4).

Furthermore, Cayetano said she will ask officials of the executive department to provide updates on the TRAIN Law to assess whether it has achieved its purpose of funding the government’s social services and infrastructure programs for the benefit of the poor. #

Senate Ways and Means Committee Chair Senator Pia S. Cayetano

Statement on priority tax reform measures

In past Congresses, I focused on the delivery  of social services like education and health.
Now, I have the opportunity to continue this advocacy from a finance perspective. 

As chair of the Senate Ways and Means Committee, I look forward to working with our counterparts in the House of Representatives and our economic managers led by the Finance Department in exploring ways to fund social services for our people. 

I have started consultations with the DOF and soon will conduct hearings, open to all sectors. Our goal is to ensure steady, sustainable development to uplift the lives of the Filipino families.#

Senator Pia S. Cayetano

Chair, Senate Committee on Ways and Means

Senator Pia Cayetano leads a consultation with officials of Ways Ways the Department of Finance to discuss the government’s priority tax reforms.