Last September 4, 2018, the House of Representatives has approved the House Bill 8083 also known as the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill on its second reading. According to Committee on Ways and Means chair Quirino Rep. Dakila Cua, it seeks to generate more jobs by lowering the Philippine corporate income tax rate and modernizing the present investment regime. DOF has said the bill is complementary to TRAIN and would raise additional government revenues. Cua assures that the bill would not lead to a mass layoff or additional tax burden on consumers. The government has argued TRAIN resulted in more government revenues, up 21 percent year-on-year as of July, while TRABAHO is needed to modernize the country's tax system.

1. What is TRABAHO Bill?

Trabaho bill deals with corporate taxation. It aims to reduce the corporate income tax rate from 30% to 20%. The proposed measure specifically aims to reduce the corporate income tax (CIT) by two percent every two years beginning 2021 until 2029. By then, CIT will be brought down to 20 percent from the current 30 percent. Trabaho bill intends to broaden the tax base (income subject to tax) by removing some of the preferential or lower corporate tax rates under the Tax Code.

2. What will happen to the investors?

Once the new tax incentive scheme is enacted into law, an investor can enjoy a tax holiday of five to seven years depending on the location and merits of their investment. Investments in certain industries, such as infrastructure and research development, may also be rewarded with additional tax cuts.

3. To compensate the projected revenue loss resulting from lowering of corporate income tax rate, the Trabaho bill seeks to broaden the tax base by amending several provisions of the Tax Code:

• 15% gross income tax option - Under the Trabaho bill, this will no longer be available starting 2019.
  
  
• 10% tax on proprietary educational institutions and hospitals - The availment of this preferential rate will be subject to compliance with established performance criteria to be determined by the Commission on Higher Education (CHED), the Department of Education (DepEd), and the Department of Health (DOH). Otherwise, they may be subjected to higher income tax rate at 15% or 20%.
  
  
• 10% tax on regional operating headquarters of multinational companies - Two years after the effectivity of the proposed Trabaho law, the 10% preferential tax on regional operating headquarters (ROHQ) will no longer be available.
  
  
• Accelerated depreciation for private educational institutions - Under the Trabaho bill, educational institutions can avail of the outright expense option only if they have met the criteria set by CHED, DepEd, and DOH.
  
  
• Optional standard deduction - Under the Trabaho bill, the 40% OSD rate and base will be uniform for individual and corporate taxpayers at 40% of gross income. However, for corporations, availment of OSD will be limited to those classified as micro, small, and medium-sized enterprises as determined by the Department of Trade and Industry.
  
  
• Related party transactions - Under Trabaho bill, the Commissioner will have an enhanced power to distribute, apportion, or allocate gross income or deductions, as he can exercise it not only to prevent evasion of taxes but also to prevent avoidance of taxes.
  
  
• Another major purpose of Trabaho bill is to rationalize tax incentives. Under the bill, only those projects listed in the Strategic Investments Priority Plan (SIPP) may be registered and given incentives.
  
  
• Single incentive menu - In the Trabaho bill, there will be one single incentive menu for income, customs duty and VAT incentives.
  
  

4. Income tax incentives

       a. Income Tax Holiday (ITH) – The ITH shall be granted for a period not exceeding 3 years: provided, that after the expiration of the ITH, the other income tax incentives may be applied for a period not exceeding 5 years, which includes the period of ITH availment.

       b. Other income tax incentives include:

• reduced corporate income tax of 18%;
• enhanced net operating loss carry over (NOLCO) wherein the NOLCO during the first 3 years may be carried over within the next 5 years following the year of such loss
• deduction for reinvestment allowance to manufacturing industry;
• up to 100% deduction on infrastructure development;
• up to 100% additional deduction on training expenses;
• up to 100% additional deduction on research and development expenses;
• up to 50% additional deduction on the increment of direct labor expense;
• depreciation allowance for qualified capital expenditure;
  
  

      c. Customs duty incentives - Exemption from customs duty on importation of capital equipment and raw materials directly and exclusively used in the registered activity for a period not exceeding 5 years.

      d. VAT incentives

• Registered export enterprise whose export sales meet the 90% threshold and are located within an ecozone, freeport, or those utilizing customs bonded manufacturing warehouse may be given VAT zero-rating on export sales, or on importation or domestic purchases of capital equipment and raw materials used in the manufacture and processing of products.
  
  

5. What will happen to incentives granted prior to effectivity of the proposed Trabaho law?

       According to the Trabaho bill, this is applicable "provided that the 5% GIE shall commence after the ITH period has lapsed [but] only for the remaining years within the five-year period."

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Sources:
- Gialogo, E. G. (2028, September 2). Things you need to know about Trabaho bill. Retrieved September 6, 2018, from https://www.rappler.com/newsbreak/iq/210783-things-to-know-trabaho-bill-tax-reform

- Moving swiftly, House approves TRABAHO bill on second (2018, September 4). Retrieved September 6, 2018, from https://www.philstar.com/headlines/2018/09/04/1848662/moving-swiftly-house-approves-trabaho-bill-second-reading, P. V. (2018, September 4).
- House OKs ‘Trabaho’ bill on 2nd reading. Retrieved September 6, 2018, from http://newsinfo.inquirer.net/1028375/house-oks-trabaho-bill-on-2nd-reading

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