Underperforming sectors take up bulk of tax perks — BOI study

By Prinz Magtulis (The Philippine Star), Apr. 28, 2016

MANILA, Philippines – The government granted most income tax holidays (ITH) to underperforming sectors over the past few years, highlighting the need to restructure incentives that have taken more than P80 billion in state revenues.

In a study by the Board of Investments (BOI), a copy of which was obtained by The STAR, mass housing and agricultural products topped the number of projects which have sought perks from the investment promotion agency from 1995 to 2012.

Broken down, 655 mass housing projects and 479 farm counterparts were granted ITH of up to eight years, depending on their classification.

By amount of ITH provided, power generation plants cornered the bulk of incentives averaging P43.08 billion from 1995 to 2003 alone.

“In the short-term, the balance of ITH availed in any given year are easily recovered by a small portion of the amount of investments made for that year,” the 14-page study stated.

“In the medium- and long-term, additional benefits would be obtained from registered projects once the period of their ITH availment ends,” it added.

The study titled “Globalization and the Need for Reinforced Tax and Fiscal Incentives Policy” was submitted to Congress tackling a bill to revise the incentives mechanism to raise more revenues.

“I am biased against tax incentives. I think they should be revisited since some of them are not really necessary,” said Emilio Neri Jr., lead economist at Bank of the Philippine Islands.

For the Department of Finance, mass housing, in particular, should just be granted direct subsidies through the National Housing Authority (NHA), instead of an ITH.

“They are not connected to socialized housing which still has a huge backlog. In a sense, you are not getting the investments you want from here,” Finance Undersecretary Ma. Lourdes Recente said.

“Our proposal is to just grant direct subsidies through NHA so that it can be monitored,” she added.

According to official housing data, there remains a backlog of around 600,000 in the socialized housing segment worth P400,000 and below despite years of booming real estate sector.

The same case could be said for power producers, considering the country’s persistent power woes amid high prices, Neri said.

“With or without these sweeteners, investors will come in. Besides, they are already profiting so why the need for these?” he explained.

For agriculture, which contracted 0.3 percent in the first quarter due to El Niño, Neri said direct assistance to farmers will be more effective.

Finance Secretary Cesar Purisima has said his agency and the Department of Trade and Industry (DTI) already agreed on 95 percent of differences on incentive reform and is optimistic it could be pushed next administration.

BOI is under DTI supervision. BOI chief Ceferino Rodolfo did not respond to queries.