HOUSE OF REPRESENTATIVES

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Republic of the Philippines site-8 .
HOUSE OF REPRESENTATIV: AC re
ative, [2s 33 py
Quezon City

BY:
SEVENTEENTH CONGRESS} generation uatt
First Regular Session BILLS AND INDEX SERVICE

House Bill No.__ 38

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 would 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 for the ASEAN regional economic
integration in compliance with the ASEAN Economic Community (AEC)
Blueprint to which the Philippines is a signatory. It sought to transform
ASEAN into a single market starting 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 and passage of
this bill, which was previously filed as House Bill 4941 in the Sixteenth
Congress by the undersigned, is eamestly urged

ARTHUR C. YAP
Representative


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

House Bill No.

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-G5%)] TWENTY-
EIGHT PERCENT (28%) BEGINNING JANUARY 1,

2017; TWENT

-SIX PERCENT (26%) BEGINNING
JANUARY 1, 2017; TWENTY-FOUR PERCENT (24%)
BEGINNING JANUARY 1, 2019; TWENTY-TWO

PERCENT BEGINNING JANUARY 1, 2020; AND


I TWENTY PERCENT BEGINNING JANUARY 1, 2021

2 AND THEREAFTER is hereby imposed upon the taxable
3 income derived during each taxable year from all sources

4 within and without the Philippines by every corporation, as

5 defined in Section 22(B) of this Code and taxable under this

6 Title as a corporation, organized in, or existing under the laws

7 of the Philippines. [-Provided, Phat effective January +2009,

8 the rate of income tax shall-be thirty percent-(30%).]

9 XXX

10 SECTION 2. Section 28 of Republic Act No. 8424, otherwise known

11 as the National Internal Revenue Code of 1997, as amended, is hereby further

12 amended to read as follows:

13 Section 28. Rates of Income Tax on Foreign Corporations -
4 (A) _ Tax on Resident Foreign Corporation —

15 (1)In General - Except as otherwise provided in this Code,
16 a corporation organized, authorized, or existing under the
7 laws of any foreign country, engaged in trade or business
18 within the Philippines, shall be subject to an income tax
19 equivalent to [thirty-five—pereent-35%)] TWENTY-
20 EIGHT PERCENT (28%) BEGINNING JANUARY 1,
21 2017; TWENTY-SIX PERCENT (26%) BEGINNING
22 JANUARY 1, 2018; TWENTY-FOUR PERCENT
23 (24%) BEGINNING JANUARY 1, 2019; TWENTY-
24 TWO PERCENT BEGINNING JANUARY 1, 2020;

25 AND TWENTY PERCENT BEGINNING JANUARY


20

2

22

23

24

1, 2021 AND THEREAFTER, of the taxable income
derived in the preceding taxable year from all sources
within the Philippines. [-Provided-that effective January
4,-2009,the-rate-of- incometax-shall_be-thirty-pereent
GO%)]

XXX,

(B) Tax on Non-resident Foreign Corporation -

@) _InGeneral - 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
5%)—of] TWENTY-EIGHT PERCENT (28%)
BEGINNING JANUARY 1, 2017; TWENTY-SIX
PERCENT (26%) BEGINNING JANUARY 1, 2018;
TWENTY-FOUR PERCENT (24%) BEGINNING
JANUARY 1, 2019; TWENTY-TWO PERCENT
BEGINNING JANUARY 1, 2020; AND TWENTY
PERCENT BEGINNING JANUARY 1, 2021 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 gains subject to tax under sub-


paragraph 5(C). {-Provided, That effective January,

2009;th f tax-shall-be thirty-pereent (30%)}

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 [(20%)]
(13%) which represents the difference between the
regular income tax of fthirty-five] TWENTY-EIGHT
percent [(35%)] (28%) BEGINNING JANUARY 1,
2017 and the fifteen percent (15%) tax on dividends as
provided in this sub-paragraph; Provided, that
effective January 1, [2609] 2018, the credit against the
tax due shall be equivalent to [ffeen] ELEVEN

percent [(45%}] (11%) which represents the


difference between the regular income tax of [thirty]
TWENTY-SIX percent [6%)] (26%), and the
fifteen percent (15%) tax on dividends [.];
EFFECTIVE JANUARY 1, 2019, 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 DIVIDENDS;
EFFECTIVE JANUARY 1, 2020, 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, 2021 AND
THEREAFTER, EQUIVALENT TO FIVE
PERCENT (5%) WHICH REPRESENTS THE
DIFFERENCE BETWEEN THE REGULAR

INCOME TAX OF TWENTY PERCENT (220%)


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 afler its publication in at least two (2) national newspapers of
general circulation

Approved.