Here's how the TRABAHO bill will affect your company in the years to come

Here's how the TRABAHO bill will affect your company in the years to come

Economy

Globe myBusiness

Globe myBusiness

245 week ago — 5 min read

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?


The Bill has two primary objectives:
 (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.


Why does it want to bring down the corporate income tax rate, anyway?
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).


What will be the effects of TRABAHO bill on my small business?
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.


Is there something small and medium businesses can do to prepare for TRABAHO bill?
While much of it is in the hands of our lawmakers in the House of Representatives and the Senate, there are certain things MSMEs can do to prepare for the implementation of the TRABAHO bill.

  • Before it is signed to law, use this time to assess and organize your business’s tax processes as well as your accounting department. Make sure that everything is compliant and working smoothly.

  • Educate your accounting team on the changes, and maybe even hire someone to re-train them on corporate tax. You want the transition to be as smooth and efficient as possible. If everything goes according to plan, by January 1, 2020, your corporate income tax will be lowered to 28%. It will then be reduced by 2% every two years until it reaches 20%.

  • Because the lower tax rate will mean increased revenue for your business, it’s important to set a plan on how to proceed with the added capital — and this is where forecasting comes in. Knowing you’ll be paying 2% less every two years in taxes, create a forecast on the amount you’re set to save in the next few years. Afterwards, sit down with your management team and examine how this added capital can be best used for the business. Would you like to increase production and hire more workers? Build a new warehouse? Begin exporting? Forecasting will help with your goals.

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker. 

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