September 30, 2023

The graduated corporate income tax (CIT) schedule is already being implemented in six of the 10 member countries in the Association of Southeast Asian Nations, and the Philippines will only be doing catch-up if it administers the system, says a trustee of the country’s largest organization of exporters.
Oscar A. Barrera, trustee for the Chemicals sector of the Philippine Exporters Confederation, Inc. (Philexport), clarified that the group’s proposal for a graduated system of corporate taxation to be part of Corporate Income Tax and Incentives Rationalization Act (Citira), is already being implemented in 60 percent of ASEAN countries.
This is based on a Philexport research using the tax guides from international audit firms Deloitte, Ernst & Young, and PricewaterhouseCoopers.
Philexport in a position paper last November had expressed support for Senate Bill 595, which seeks to implement corporate income tax reform and fix the complex tax incentive system in the country.
Specifically, Philexport favored an equitable and progressive system of taxation over the current unitary or single income tax rate for corporate taxpayers.
Philexport said the present system imposes an equally high tax rate on small companies that have very limited cash flow” as it does on large companies, “consequently decreasing (small firms’) ability to expand and contribute more to the economy.”
Should the Philippines decide to pursue a graduated CIT schedule, it would become the seventh ASEAN country to do so, it added. The others are Brunei Darussalam, Indonesia, Laos, Malaysia, Singapore, and Thailand.
Data shows that in Brunei, the progressive income tax rate is 4.625 percent, 9.25 percent, and 18.5 percent based on chargeable income. Indonesia applies tax rates of 0.5 percent, 12.5 percent, and 25 percent, while Malaysia implements 17 percent and 24 percent tax rates, based on net taxable income.
Meanwhile, Singapore’s standard corporate income tax rate is 17 percent, with tax exemptions for 75 percent of the first SGD10,000, and 50 percent of the next SGD290,000 (SGD190,000 effective 2020). Thailand follows a one to 15-20 percent taxation scheme based on net profit.
Laos imposes a standard flat corporate tax rate of 24 percent for companies registered under the Value Added Tax (VAT) system, and a progressive lump-sum tax of between three percent and seven percent for non-VAT-registered micro, small, and medium enterprises (MSME).
On the other hand, the Philippines has the highest corporate income tax rate in Southeast Asia at a flat rate of 30 percent, placing a heavy burden on MSMEs, which continue to struggle with financing and competitiveness challenges, said the paper.
Barrera stressed that a progressive implementation of the CIT “can be a game changer for the MSMEs as it will give them more breathing space in terms of cash flow” and “energize our MSMEs and encourage them to expand their business.”
“This scheme should also assist entrepreneurial Filipinos and make them more cost- and market-competitive locally and internationally,” added Barrera, also chair of the Export Development Council Networking Committee on Legislative Advocacy and Monitoring.
“At the moment, the tax regime in the country has put Philippine companies in an uneven playing field with counterparts especially in ASEAN.”
This bill, filed by Sen. Ralph G. Recto, proposes to apply segmented tax rates according to companies’ taxable income. It seeks to lower the CIT from the current single rate of 30 percent to a graduated rate ranging from five percent to 25 percent.
In the same context of supporting hardworking Filipinos, Barrera cited Recto’s bill proposing to exempt overtime pay from taxes to help augment their income.
While voicing support for the Recto bill, Philexport position paper also suggested “consolidating and putting together the salient features of the proposed bills in the Senate and improving certain sections so as to create a comprehensive and inclusive legislation. – Press release