With the unprecedented 170-8 vote in the House of Representstives on third and final reading in favor of endorsing the Corporate Income Tax and Incentive Rationalization Act (Citira) bill, the debates on this landmark legislation shift to the Senate.
If the bill becomes law Corporate income taxes can drop to as low as 20%-25% for all business.
The backdrop of this unprecedented vote is the reality that our corporate tax rates are ASEAN’s highest at around 30%, with Indonesia and Malaysia at about 25%.
Lowering these rates will therefore lower business costs and put us at par with our neighbors.
More importantly, this will mean lower taxes for our small and medium businesses that comprise 97% of the almost one million registered enterprises. This makes the reduced tax measure a clear boost for the small business, the backbone of our economy. The less taxes they pay, the more money can be left over to expand. The more funds are available to hire new workers.
Along with a low inflation environment, the lower costs will allow even more money to be retained, enabling them to expand. When businesses expand, the economy grows as a whole.
After the hullaballoo over the first TRAIN law being unduly blamed for the rise in inflation last year (it was actually the spike in rice and fuel prices that caused it), it is now down to 1.7% on the back of lowered rice and fuel prices.
It is thus clear that the excise tax on diesel fuels is not to blame for inflationary spikes. The outcome is obvious: despite the tax being presently applied, inflation has gone down.
The threat on the horizon is the impending rise in fuel prices after the drone attach on the aramco refinery, which will push fuel prices, and inflation, up.
Now, if government wants to keep inflation low, then we will need to reduce that other bigger driver of inflation: rice prices.
Already, as the 3 million metric tonnes or so of rice in NFA warehouses are being distributed by the Department of Agriculture, we hope that retail rice prices will go down further to temper the possibility of inflation with the impending fuel hikes.
In all, the two packages of tax reforms have achieved a more rationalized tax system that shifts the burden of the payment of taxes to those who can better afford to pay for them, and removes taxes from the greater majority- in this case the small businesses and the majority of salaried workers.
This unleashes their consumption income to propel the economy. As the consumption economy grows, it becomes more attractive to investors who will want to cash in on this larger market for the goods they produce and services they provide.
Thus, generally speaking, as taxes go down, and inflation is kept low, the economy will keep growing.
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