Republic of the Philippines

HOUSE OF REPRESENTATIVES
Queson City

SEVENTEENTH CONGRESS
First Regular Session

House BILL No.0384

Introduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.
— eee

EXPLANATORY NOTE

The Philippines currently has the highest corporate income tax within the Association of
Southeast Asian Nations (ASEAN) at 30% of net taxable income—a rate which far outstrips the
region’s average of 23%. Within the ASEAN, Indonesia and Malaysia follow at 25%, Vietnam at
22%, and Thailand and Cambodia at 20%; Singapore, on the other hand, imposes the lowest
corporate income tax rate at 17%. Despite this, the Philippines’ tax effort is still lower than that
of most countries in the region, reaching only 13.72% of Gross Domestic Product in 2016.

The Philippines also lags behind its neighbors in terms of Foreign Direct Investments
(FDI) inflows. The World Economic Forum’s 2016-2017 Global Competitiveness Report notes
that “tax rates” and “tax regulations” are among the five “most problematic factors for doing
business” in the Philippines; understandably, investors prefer countries with similar production
capacities but lower tax rates. In contrast, Singapore, which has the lowest corporate income tax
rate in the region, attracts the most FDI, which is a crucial factor in generating jobs, bringing in
new technologies, and promoting economic growth.

The country also has an opportunity to benefit from the flow of capital through trade and
investment that greater economic integration within the N seeks to bring—but it might
find itself unable to do so given its current corporate income tax framework, It should be noted
that with the signing of the ASEAN Economic Community Declaration, many member-countries
have already lowered their respective corporate income tax rates in preparation—and it is
imperative for the Philippines to immediately reform its taxation system to make sure it is
competitive and attractive to investors.



Thus, this bill seeks to amend Sections 27 and 28 of the National Internal Revenue Code
of 1997, as amended, by reducing the corporate income tax from 30% to 25%,

In light of the foregoing, the immediate passage of this bill is earnestly sought.

LUIS F. VILLAFUERTE, JR.


Republic of the Philippines

HOUSE OF REPRESENTATIVES
Queson City

SEVENTEENTH CONGRESS,
First Regular Session

HOUSE BILL No.0384

Introduced by HON. LUIS RAYMUND “LRAY” F, VILLAFUERTE, JR.

AN ACT REDUCING THE COPORATE INCOME TAX RATE, AMENDING
SECTIONS 27 AND 28 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997,
AS AMENDED, AND FOR OTHER PURPOSES

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

SECTION 1. Section 27 (A) of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:

“SEC, 27. Rates of Income tax on Domestic Corporations. —

(A) In General. - Except as otherwise provided in this Code, an income tax of [thirty
percent (35%)] TWENTY-FIVE PERCENT (25%) 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 1, 2009, the rate of income tax
shall be thirty pereent (30%).).”

SECTION 2. Section 28 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:

“SEC. 28. Rates of Income Tax on Foreign Corporations.


(A) Tax on Resident Foreign Corporations. —

(1) In 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 percent (35%)] TWENTY-FIVE PERCENT (25%) of the taxable
income derived in the preceding taxable year from all sources within the
Philippines [: Provided, ‘That effective January 1, 2009. the rate of income tax
shall be thirty percent (30%)].

XxX
“(B) Tax on Nonresident Foreign Corporation.

(1) 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 [thirty-five
percent (35%)] TWENTY-FIVE PERCENT (25%) 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 gains subject
to tax under subparagraph S(c) [: Provided, That effective January 1. 2009, the
rate of income tax shall be thirty percent (30%)]-”

XXX

“(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation

XXX

“(b) Intercorporate Dividends. - A final withholding tax 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 nonresident foreign corporation is domiciled, shall allow a credit
against the tax due from the nonresident foreign corporation taxes deemed to have
been paid in the Philippines equivalent to [twenty percent (20%)] TEN
PERCENT (10%), which represents the difference between the regular income
tax of [thirty-five percent (35%)] TWENTY-FIVE PERCENT (25%) and the
fifteen percent (15%) tax on dividends as provided in this subparagraph [:



inst the tax due shall be

Provided, that effective January 1. 2009. the credit a
equivalent to fifteen percent (

5%). which represents the difference between the
regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on
dividends}.”

SECTION 3. Implementing Rules and Regulations. Within thirty (30) days of the effectivity of
this law, the Secretary of Finance shall. upon the recommendation of the Commissioner of
Internal Revenue, promulgate and publish the necessary rules and regulations for the effective
implementation of this Act.

SECTION 4. Repeating Clause. All laws. orders, issuances, circulars, rules and regulations or
parts thereof, which are inconsistent with the provisions of this Act are hereby repealed or
modified accordingly.

SECTION 5. Separability Clause. If any provision of this Act is declared unconstitutional or
invalid, other parts or provisions hereof not affected thereby shall continue to be in full force and
effet.

SECTION 6. Effectivity. This Act shall take effect fifteen (15) days following its publication in
at least two (2) newspapers of general circulation

Approved,