Incentives rationalization urged

THE PHILIPPINES must rationalize its fiscal incentives since many overlap, officials of the International Monetary Fund (IMF) said.

Kiyoshi Nakayama and Selcuk Caner of the IMF Fiscal Affairs Department last week warned of “double-dipping” since incentives are granted to investors depending on the law they invoke.

There are also 13 investment promotion agencies, highlighting the need for an institutional framework for the granting and monitoring of incentives, they said in a presentation to the Finance department.

While there is no verifiable cost, they cited an estimate of University of the Philippines economist Renato E. Reside Jr., pegging losses due to overlaps at 1% of gross domestic product in 2006.

The country offers a wide range of incentives, among them income tax holidays ranging from three to eight years, a 5% gross income tax and additional deductions for infrastructure spending and labor expenses. Qualified investors are also awarded exemptions from wharfage fees, taxes on imports, fees on exports and value-added taxes (VAT) on imported supplies.

The “preferred reform” is to repeal all income tax holidays and the 5% gross income tax, Messrs. Nakayama and Caner said.

However, an alternative is to “significantly rationalize” existing perks, especially those that are inconsistent with international agreements, discretionary, rarely used and prone to abuse — income tax holidays and special economic zones were specifically cited.

Among others, they urged that all incentives run for no more than 10 years. All incentives laws should also have a sunset clause of no more than five years.

The Aquino administration has tagged the fiscal incentives bill as a priority measure.

House Bill 4935 was passed on the third and final reading in August last year but it remains with the Senate ways and means committee as the Finance and Trade departments iron out their differences over the bill.  –Businessworld