HuUSE OF REPRESENTATIVES:

RECEIVED
Republic of the Phil pave:_19 Jul 2018
HOUSE OF REPRESENTATIVES ee San

Quezon City

BY:

SEVENTEENTH (17TH) CONGRESS
First Regular Session REEISTRATION UNIT

BILLS ANU «NCLX SERVICE

”
House Bill No. ie"

Introduced by: Rep. BERNADETTE R. HERRERA-DY

AN ACT RED! \G THE CORPORATE INCOME TAX RATE,
AMENDING SECTIONS 27 AND 28 OF THE NATIONAL INTERNAL REVI
CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES

Explanatory Note

This bill aims to gradually reduce the rate of corporate income tax over a three (3) year
period beginning January 1, 2017 and seeks to amend, for these purposes, Sections 27 and 28
of the National Internal Revenue Code of 1997, as amended. ‘This bill is a counterpart
version of S.B. 2163 authored by Sen. Sonny Angara during the 16" Congress and
accordingly reproduces portions of its explanatory note.

The bill is part of a twin measure to reduce the country's income tax rates for individuals
and corporations in preparation for the Association of South East Asian Nations (ASEAN)
Integration. In 2007, the Philippines together with Brunei Darussalam, Cambodia, Indonesia,
Lao People's Democratic Republic, Malaysia, Myanmar, Singapore, Thailand and Vietnam
signed the ASEAN Economic Community (AEC) Blueprint. Each member-state shall adopt
and implement the AEC Blueprint which seeks to transform ASEAN into a single market and
production base by December 2015.

Harmonization is both a model and requisite for regional integration. At present, ASEAN
member-states manifest differences in their corporate and individual Income tax regimes with
such differences coming as a result of different levels of development and requirements of
governance. The differentiated tax rates would inevitably swing the pendulum as investors
and taxpayers shift from a high-tax jurisdiction to a low-tax jurisdiction. Moreover, if the
country does not adjust its high corporate income tax rate, it will create massive transfer
pricing issues that will translate into revenue loss.

The Philippines holds the distinction of having the highest corporate income tax rate at
30-percent, When the AEC Declaration was signed, some member-states began to lower their
corporate income tax rates. For instance, Thailand gradually reduced its corporate income tax
rate from 30 percent in 2011, 23 percent in 2012 and 20 percent today. Vietnam also lowered
its corporate income tax rate from 25 percent to 22 percent in 2014. It will be reduced further
to 20 percent this year.

At present, the average rate among the ASEAN countries hovers at 23.1 percent, with

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Singapore having the lowest at 17 percent.

In order for the Philippines to attract capital, it is imperative that the country’s onerously
high tax rates be reduced. While we expect a revenue shortfall as a short term result of this
proposal, we could recoup the same by making the Philippines an attractive investment haven
that would expand our tax base, increase economic activity, and create massive employment.

In view of the foregoing, immediate approval of this bill j¢éarnestly sought.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NTEENTH (17TH) CONGRESS
First Regular Session

1537

House Bill No.

Introduced by: Rep. BERNADETTE R. HERRERA-DY

AN ACT REDUCING THE CORPORATE 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-five percent (35%)] TWENTY-NINE PERCENT (29%) BEGINNING
JANUARY 1, 2017, TWENTY-SEVEN PERCENT (27%) BEGINNING
JANUARY 1, 2018 AND TWENTY-FIVE PERCENT (25%) BEGINNING
JANUARY 1, 2019, 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
percent (30%)}:”

SEC. 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-NINE


PERCENT (29%) BEGINNING JANUARY 1, 2017, TWENTY-SEVEN
PERCENT (27%) BEGINNING JANUARY 1, 2018 AND TWENTY-FIVE
PERCENT (25%) BEGINNING JANUARY 1, 2019 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%)

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“(B) Tax on Nonresident Foreign Corporations. ~

(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-NINE PERCENT (29%)
BEGINNING JANUARY 1, 2017, TWENTY-SEVEN PERCENT (27%)
BEGINNING JANUARY 1, 2018 AND = TWENTY-FIVE PERCENT
(25%) BEGINNING JANUARY 1, 2019 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 5(c)[: Provided, That
effective January 1, 2009, the rate of income tax shall be thirty percent
(30%)]

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

XXXX

(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%)]
FOURTEEN PERCENT (14%), which represents the difference
between the regular income tax of [thirty-five percent (35%)
TWENTY-NINE PERCENT (29%) BEGINNING JANUARY 1, 2017
and the fifteen percent (15%) tax on dividends as provided in this
subparagraph: Provided, That effective January 1,[2009] 2018, the
credit against the tax due shall be equivalent to [fifteen percent (15%)]
TWELVE PERCENT (12%), AND EFFECTIVE JANUARY 1, 2019,
EQUIVALENT TO TEN PERCENT (10%), which represents the
difference between the regular income tax of [thirty percent (30%)]


TWENTY-SEVEN PERCENT (27%) AND TWENTY-FIVE
PERCENT (25%), RESPECTIVELY, and the fifteen percent (15%) tax

SEC 3. Implementing Rules and Regulations. - ‘The Secretary of Finance shall
promulgate the necessary rules and regulations for the effective implementation of the
provisions of this Act.

SEC. 4, Repealing 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.

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

SEC. 6. Effectivity. - This Act shall take effect on January 1, 2017 following its
publication in at least two (2) newspapers of general circulation.

Approved,

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