EIGHTEENTH CONGRESS OF THE )

REPUBLIC OF THE PHILIPPINES )
First Regular Session )
HOUSE OF REPRESENTATIVES
H.B.No, 4945

Introduced by Rep. Vilma Santos-Recto
6" District of Batangas

AN ACT
INSTITUTING INCOME TAX REFORM FOR CORPORATE TAXPAYERS,
AMENDING FOR THIS PURPOSE SECTIONS 27(4) AND 28 OF THE
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED

EXPLANATORY NOTE

One of the inherent powers of the State is the power of taxation. However, there
are limitations on the exercise of such power. Section 28, Article VI of the 1987
Philippine Constitution provides that the rule of taxation shall be uniform and equitable
and that Congress shall evolve a progressive system of taxation.

Jurisprudence is replete with cases explaining that uniformity of taxation and the
equal protection clause require that all subjects or objects of taxation similarly situated
are to be treated alike both in privileges and liabilities. A progressive system of taxation
as well as the concept of equity in taxation suggests that the tax rates should be based
n the taxpayer’s ability to pay. Therefore, a tax system is progressive when the tax rate

increases as the tax base increases.

This bill seeks to amend Sections 27(A) and 28 of the NIRC, as amended, to
replace the unitary or single income tax rate with a graduated income tax schedule for
corporate taxpayers similar to those provided for the individual taxpayers. The basis for
adopting this tax system is to align income taxation for corporations with the
constitutional mandate of a progressive system of taxation and the rule on uniform and
equitable taxation.


Under the Revised Corporation Code, a duly organized corporation is clothed
with a personality separate and distinct from the persons composing it. Therefore, being
a juridical person, a corporation is recognized by law as a person similar to a natural
person. Thus, a corporation can sue and be sued in its corporate name, and it can also
purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with real and personal property. Therefore, it is but proper that for
purposes of taxation, a corporation should be treated like an individual. Like an
individual taxpayer, a corporate taxpayer should be afforded a system of income
taxation based on its ability to pay.

Also, this bill seeks to lower the corporate income tax rate from the current
unitary or single income tax rate of 30% with graduated rates ranging from 5% to 25%.
In the ASEAN Region, the average corporate income tax rate is at 22.4%. Among the
ASEAN-member countries, the Philippines has the highest corporate income tax rate at
30% while Singapore has the lowest rate at 17%.' This would help the country in
becoming more attractive to foreign direct investments.

It is noteworthy that this proposed measure seeks to provide a uniform
graduated income tax schedule for individual and corporate taxpayers. The intent is to
simplify income taxation for all taxpayers and to make the same easier to comprehend.
A tax is a burden on the taxpayer, it being an enforced proportional contribution to
finance the operation of the government and other public needs. To ease the burden, a
simplified system for the payment of taxes should be provided.

VILMA SANTOS-RECTO

* comparative Corporate Income Taatlon In ASEAN Member Counties (NTC Tax Research Jour, Vo: January-February 2018)

2



eu annewn =

EIGHTEENTH CONGRESS OF THE)
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

H.B.No,_4945

Introduced by Rep. Vilma Santos-Recto
6" District of Batangas

AN ACT
INSTITUTING INCOME TAX REFORM FOR CORPORATE TAXPAYERS,
AMENDING FOR THIS PURPOSE SECTIONS 27(A) AND 28 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED

Be it enacted by the Senate and 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 fof thirty-five-pereent-(35%)} is hereby imposed upon the taxable income
derived 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 tantary +2009, the-rate- of income tax
shall-be-thirty—percent-30%}}. THE TAX SHALL BE COMPUTED IN
ACCORDANCE WITH AND AT THE RATES ESTABLISHED IN THE

FOLLOWING SCHEDULE:
TAXABLE INCOME TAX RATE
“NOT OVER P400,000 a 5%
“OVER P400,000 BUT ++ P20,000 + 10% OF THE
NOT OVER P800,000 EXCESS OVER P400,000

“OVER P800,000 BUT «++ P60,000 + 15% OF THE


NOT OVER P2,000,000 EXCESS OVER P800,000

“OVER P2,000,000 BUT «++ P240,000 + 20% OF THE

NOT OVER P8,000,000 EXCESS OVER P2,000,000

“OVER P8,000,000 w+. P1,440,000 + 25% OF THE
EXCESS OVER P8,000,000

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, fa} AN
INCOME TAX IS HEREBY IMPOSED UPON THE TAXABLE INCOME
DERIVED IN THE PRECEDING TAXABLE YEAR FROM ALL
SOURCES WITHIN THE PHILIPPINES BY EVERY corporation organized,
authorized, or existing under the laws of any foreign country, engaged in trade or

business within the Philippinesf,-shall-be-subject-to-an-_income-tax-equivalent-io

& jthin-the Philippines Provided-That- effect :
2009,-the-rate-of income tax-shall-be-thirty-pereent-30%}}. THE TAX SHALL
BE COMPUTED IN ACCORDANCE WITH AND AT THE RATES

ESTABLISHED IN THE FOLLOWING SCHEDULE:

TAXABLE INCOME TAX RATE
“NOT OVER P400,000 a 5%
“OVER P400,000 BUT a+ P20,000 + 10% OF THE
NOT OVER P800,000 EXCESS OVER P400,000
“OVER P800,000 BUT . P60,000 + 15% OF THE
NOT OVER P2,000,000 EXCESS OVER P800,000
“OVER P2,000,000 BUT + P240,000 + 20% OF THE
NOT OVER P8,000,000 EXCESS OVER P2,000,000
“OVER P8,000,000 «++ P1,440,000 + 25% OF THE
EXCESS OVER P8,000,000
“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 5(c) {:-Provided,
Sec. 3. Implementing Rules and Regulations (IRR). ~ Within thirty (30) days from the

effectivity of this Act, the Secretary of Finance, upon the recommendation of the
Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations for
its effective implementation.

Sec. 4. Repealing Clause. — All laws, acts, decrees, executive orders, issuances, and
rules and regulations or parts thereof which are contrary to and inconsistent with this Act are
hereby repealed, amended or modified accordingly.

Sec. 5. Effectivity. ~ This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) newspapers of general circulation.

Approved,