Here's how the TRABAHO bill will affect your company in the years to come.
In September 2018, the House of Representatives approved House Bill 8083 or Tax Reform for Attracting Better and High-quality Opportunities — the TRABAHO bill in short.
The bill is expected to create widespread changes in the country’s business industry. For business owners, it’s important to know how this soon-to-be law will affect their small or medium enterprise in the next few years and beyond.
So what exactly are the basic features of the TRABAHO bill?
(1) to bring in more investments by lowering the tax rate for businesses, otherwise known as the corporate income tax rate (CIT)
(2) to update the rules on tax incentives given to corporations to make it more fair, competitive, and to increase tax revenue.
While the initial TRAIN 1 tax program focused on personal taxes of individuals (personal income tax, value added tax, and others), the TRABAHO tax bill now looks at corporate taxation — for businesses, both local and foreign.
In the ASEAN region, the Philippines has the highest corporate income tax rate (CIT) at 30%. The goal is to gradually reduce this number by 2% every two years beginning 2021 until 2029. This will bring it down to 20% which is within the average CIT rate in the region.
The move is expected to give businesses more capital to grow and expand their business, and also hire more workers in the process — a million jobs over the medium term, according to the Department of Finance (DOF).
According to the Department of Trade and Industry (DTI), micro, small, and medium enterprises (MSMEs) account for 99% of total businesses in the country — around 925,000 Filipino enterprises. Based on data from the DOF, nearly 90,000 small and medium businesses pay the regular income tax. These businesses stand to gain the most in paying lower income taxes.
For MSMEs, TRABAHO bill benefits will include saving more money from paying less taxes. It is hoped that this will entice them to grow their business, innovate, expand, as well as hire more local workers.
With nearly a million small businesses all over the country, MSMEs contribute a third of the Philippines’ total employment. According to the DTI, MSMEs generated a total of 4.9 million jobs in 2017 versus 2.9 million for large corporations.
While much of it is in the hands of our lawmakers in the House of Representatives and the Senate, there are small things MSMEs can do to prep for the implementation of the TRABAHO bill.
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