Republic of the Philippines
HOUSE OF REPRESENTATIVE
Quezon City

SIXTEENTH CONGRESS
Second Regular Session

House Bill No._4941

Introduced by REPRESENTATIVE ARTHUR C. YAP.

EXPLANATORY NOTE

In the Philippines, the corporate income tax rate is a tax collected
from companies, whether domestic, resident foreign or non-resident
corporation. Its amount is based on the net income companies obtain while
exercising their business activity, normally during one business year. Except
for certain passive incomes and incomes of domestic non-profit proprietary
educational institutions and hospitals, a corporation is taxed at thirty per cent
(30%) of its taxable income; that is, its gross income from all sources within
and without the Philippines less allowable deductions. Revenues from the
corporate taxes are an important source of income for the government.

The Philippines is reputed to have the highest corporate tax rates in
the ASEAN region at 30%. Currently, the average rate among the ASEAN
countries is around 23%. Partly due to such high corporate tax rates, many
corporations resort to tax evasion.

Tax evasion is the use by the taxpayer of illegal or fraudulent means
to defeat or reduce the payment of a tax, such as the deliberate failure to
report taxable income or property or the deliberate reduction of income that
has been received. It is punishable by law. Thus, any person or corporation
who willfully neglects to file a return within the period prescribed by the
National Internal Revenue Code (NIRC) or willfully files a false or
fraudulent return will be liable to certain penalties. The impact on the
economy of tax evasion is loss of government revenues and perverse effects
on the equity and efficiency goals of the tax system.

This bill seeks to lower corporate tax rates imposed on corporations
by two percent (2%) per year for the next five (5) years from its effectivity
and settle at a flat rate of 20%. The primary objective of the measure is to
remove the incentive for corporate taxpayers to resort to tax evasion and
encourage them to voluntarily pay their tax liabilities. It is to be


accomplished without leaving any distorting effect on the government’s
revenue collections based on the doctrine of the Khaldun-Laffer curve.

The Khaldun-Laffer curve is a representation of the relationship
between possible rates of taxation and the resulting levels of government
revenues and illustrates the concept of taxable income elasticity —
that taxable income will change in response to changes in the rate of
taxation. It postulates that increasing tax rates beyond a certain point will be
counter-productive for raising further tax revenues. Hence, the reverse
proposition that decreasing tax rates down to a certain level will in fact be
productive in raising tax revenues. While there may be initial losses in
government revenues as a result of the proposed measure, such losses could
be recovered as investments would come in and generate greater economic
activities.

But more importantly, the bill is in preparation to the forthcoming,
ASEAN regional economic integration in compliance to the ASEAN
Economic Community (AEC) Blueprint to which the Philippines is a
signatory. It seeks to transform ASEAN into a single market by December
2015. In order to be competitive under such new economic order, it is
imperative that the Philippines reduce its high corporate tax rates and
become attractive to foreign investments.

For the foregoing reasons, the immediate consideration,
this bill is earnestly urged.

d passage of

ARTHUR’C. YAP
Representative


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
Second Regular Session

House Bill No._4941

Introduced by REPRESENTATIVE ARTHUR C. YAP

AN ACT
REDUCING THE RATES OF INCOME TAX IMPOSED
ON CORPORATIONS IN THE PHILIPPINES,
AMENDING FOR THE PURPOSE REPUBLIC ACT NO.
8424, OTHERWISE KNOWN AS THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED,
AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines
in Congress assembled.

SECTION 1. Section 27 of Republic Act No. 8424, otherwise
known as the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:

Section 27. Rates of Income Tax on Domestic Corporations -

(A) In General — Except as otherwise provided in this Code,

an income tax of [thirty-five-pereent(35%)] TWENTY-
EIGHT PERCENT (28%) BEGINNING JANUARY 1,
2015; TWENTY-SIX PERCENT (26%) BEGINNING
JANUARY 1, 2016; TWENTY-FOUR PERCENT (24%)
BEGINNING JANUARY 1, 2017; TWENTY-TWO

PERCENT BEGINNING JANUARY 1, 2018; AND


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TWENTY PERCENT BEGINNING JANUARY 1, 2019
AND THEREAFTER is hereby imposed upon the taxable
income derived during each taxable year from all sources
within and without the Philippines by every corporation, as
defined in Section 22(B) of this Code and taxable under this
Title as a corporation, organized in, or existing under the
laws of the Philippines. [;-Provided,That-effective January
80%]

XXX

SECTION 2. Section 28 of Republic Act No. 8424, otherwise known
as the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:

Section 28. Rates of Income Tax on Foreign Corporations -

(A) Tax on Resident Foreign Corporation —

(1)/n General - Except as otherwise provided in this Code,
a corporation organized, authorized, or existing under the
laws of any foreign country, engaged in trade or business
within the Philippines, shall be subject to an income tax
equivalent to [thirty-five—pereent-G5%)| TWENTY-
EIGHT PERCENT (28%) BEGINNING JANUARY
1, 2015; TWENTY-SIX PERCENT (26%)
BEGINNING JANUARY 1, 2016; TWENTY-FOUR
PERCENT (24%) BEGINNING JANUARY 1, 2017;

TWENTY-TWO PERCENT BEGINNING


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JANUARY 1, 2018; AND TWENTY PERCENT
BEGINNING JANUARY 1, 2019 AND
THEREAFTER, of the taxable income derived in the
preceding taxable year from all sources within the
Philippines. [-Provided,that-effective January, 2009,
the rate-of income tax-shall-be thirty_percent 30%)]

XXX

(B) Tax on Non-resident Foreign Corporation -

4) In General - Except as otherwise provided in this
Code, a foreign corporation not engaged in trade or
business in the Philippines shall pay a tax equal to
[thirey-five—pereent—(35%)—of] TWENTY-EIGHT
PERCENT (28%) BEGINNING JANUARY 1, 2015;
TWENTY-SIX PERCENT (26%) BEGINNING
JANUARY 1, 2016; TWENTY-FOUR PERCENT
(24%) BEGINNING JANUARY 1, 2017; TWENTY-
TWO PERCENT BEGINNING JANUARY 1, 2018;
AND TWENTY PERCENT BEGINNING
JANUARY 1, 2019 AND THEREAFTER, of the gross
income received during each taxable year from all
sources within the Philippines, such as_ interests,
dividends, rents, royalties, salaries, premiums,(except
reinsurance premiums), annuities, emoluments or other
fixed or determinable annual, periodic or casual gains,

profits and income, and capital gains, except capital


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gains subject to tax under sub-paragraph 5(C).
. tbe

XXX

(5) Tax on Certain Incomes Received by a Non-resident

Foreign Corporation -

(a) xxx

(b)Inter-corporate Dividends - A final withholding tax
rate at the rate of fifteen percent (15%) is hereby
imposed on the amount of cash and /or property
dividends received from a domestic corporation,
which shall be collected and paid as provided in
Section 57 (A) of this Code, subject to the condition
that the country in which the non-resident foreign
corporation is domiciled, shall allow a credit against
the tax due from the non-resident foreign corporation
taxes deemed to have been paid in the Philippines
equivalent to [twenty] THIRTEEN percent [@0%)]
(13%) which represents the difference between the
regular income tax of fthirty-five]) TWENTY-
EIGHT percent {(35%)] (28%) BEGINNING
JANUARY 1, 2015 and the fifteen percent (15%) tax
on dividends as provided in this sub-paragraph:
Provided, that effective January 1, [2009] 2016, the

credit against the tax due shall be equivalent to



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[fifeen] ELEVEN percent [(15%)] (11%) which
represents the difference between the regular income
tax of fthirty] TWENTY-SIX percent [(30%)]
(26%), and the fifteen percent (15%) tax on
dividends [.]; EFFECTIVE JANUARY 1, 2017,
EQUIVALENT TO NINE PERCENT (9%)
WHICH REPRESENTS THE DIFFERENCE
BETWEEN THE REGULAR INCOME TAX OF
TWENTY-FOUR PERCENT (24%) AND THE
FIFTEEN PERCENT (15%) TAX ON

DIVIDEN

EFFECTIVE JANUARY 1, 2018,
EQUIVALENT TO SEVEN PERCENT (7%)
WHICH REPRESENTS THE DIFFERENCE
BETWEEN THE REGULAR INCOME TAX OF
TWENTY-TWO PERCENT (22%) AND THE
FIFTEEN PERCENT (15%) TAX ON
DIVIDENDS; EFFECTIVE JANUARY 1, 2019
AND THEREAFTER, EQUIVALENT TO FIVE
PERCENT (5%) WHICH REPRESENTS THE
DIFFERENCE BETWEEN THE REGULAR
INCOME TAX OF TWENTY PERCENT (20%)
AND THE FIFTEEN PERCENT TAX ON
DIVIDENDS.

XXX


is

SECTION 3. Implementing Rules and Regulations - The Secretary
of Finance shall, in consultation with the Commissioner of Internal Revenue,
promulgate the rules and regulations necessary for the effective
implementation of this Act.

SECTION 4. Separability Clause - If any of the provisions of this
Act is declared invalid or unconstitutional, the remaining parts or provisions
hereof not affected thereby shall remain in full force and effect.

SECTION 5. Repealing Clause. - All laws, decrees, executive
orders, proclamations, rules and regulations, and issuances, or parts thereof,
inconsistent with the provisions of this Act are hereby repealed or modified
accordingly

SECTION 6. Effectivity Clause. - This Act shall take effect fifteen
(15) days after its publication in at least two (2) national newspapers of

general circulation.

Approved.