Tax perks for big projects will need presidential okay

MANILA, Philippines – Investors putting in big projects in the Philippines will be needing the approval of President Arroyo and at least three Cabinet officials to quality for fiscal incentives.

This is according to a proposed measure seeking to rationalize tax perks the government provides to local and foreign investors. This provision covers big-ticket projects or those with investments of at least P1 billion.

The Department of Finance (DOF) and the Department of Trade and Industry (DTI) have reconciled their proposals to rationalize the country’s fiscal incentives measure.

Aside from limiting the approvals for strategic investors, the Finance department is proposing that the income tax holiday (ITH) granted to investors be phased out after six years from the effectivity of the law that seeks to rationalize fiscal incentives.

According to data submitted by the DOF to the House, ITH is the most redundant tax incentive tool.

It noted that in 2005, income tax holidays given to firms registered with the Board of Investments and the Philippine Economic Zone Authority amounted to P21 billion.

As such, the finance department proposed that “ITH should be completely phased out after six years from the effectivity of the law or when the ratio of infrastructure spending to gross domestic product (GDP) of five percent shall have been attained, whichever comes first.”

At present, the ratio of public spending to GDP is 2.7 percent due to the low absorptive capacity of implementing agencies tasked to implement infrastructure projects. 

Congress has yet to pass the measure seeking to rationalize fiscal incentives granted to local and foreign investors.

The finance department said “ITH should not be used to ‘compensate’ for infrastructure failings but a reasonable phase-out period is acceptable.”

Earlier, the International Monetary Fund (IMF) also urged the government to rationalize the tax incentives given to local and foreign investors, saying this would help the Philippines improve its fiscal position.

The IMF said “tax incentives substantially reduce effective tax rates on corporate income.”

The DTI believes that incentives have strongly encouraged local and foreign investors to set up businesses in the country.–Iris C. Gonzales, Philippine Star