By Rea Cu, Businessmirror, Aug 7, 2019
THE Philippine government gave away an estimated P1.12 trillion in tax incentives and exemptions to around 3,150 companies for the period of 2015 to 2017, the Department of Finance (DOF) has reported.
In a statement on Tuesday, the DOF said the forgone revenues included income tax incentives, tax incentives on customs duties and on import value-added tax (VAT).
According to the DOF, among the investment promotions agencies (IPAs) that granted incentives to registered enterprises, the Philippine Economic Zone Authority (Peza) gave away the lion’s share —about P879.1 billion of tax incentives, or about 78 percent of the three-year total.
“This is a truly massive amount. To put things in the right perspective, P1.12 trillion that we gave away in incentives over that three-year period is over twice the current [2019] budget of the Department of Public Works and Highways [DPWH],” said Finance Undersecretary Karl Kendrick T. Chua.
The budget of the DPWH this year is P549.4 billion.
“Every peso given away in tax incentives is a peso that could have gone to constructing roads, classrooms or health centers, or to hiring more teachers, doctors and nurses. The government could have implemented so many programs and projects with P1.12 trillion that was given away to companies,” he added.
The DOF study showed that approximately P301.2 billion in incentives was granted in 2015, P380.7 billion in 2016, and P441.1 billion in 2017 by the Philippine government.
“We are not saying that all these incentives are not worth it, and we acknowledge that there have been benefits in the form of job creation and investments in the domestic economy. However, we cannot keep giving away tax incentives indiscriminately and indefinitely, especially if the amount keeps getting bigger and bigger every year. We need to modernize and improve the incentive system, and this is why President Duterte in his fourth State of the Nation Address [Sona], called on Congress to immediately pass Package 2,” he said.
Package 2 of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) aims to ensure that incentives granted are worth it, according to Chua.
In order to keep receiving incentives, companies must fulfill their commitments, such as creating good jobs or directing investments outside highly urban areas in exchange for special tax treatment over a specified number of years.
Package 2 will establish a single menu of superior incentives that are performance-based, time-bound, targeted and transparent.
It will also lower corporate income taxes, bringing the Philippine CIT rate closer to the Association of Southeast Asian Nations (Asean) average.
Right now, favored companies, a number of them on the elite list of Top 1,000 corporations, pay discounted CIT rates of 6 to 13 percent while most other companies employing a majority of Filipino workers pay the regular rate of 30 percent, which is the highest in the region, said Chua.
Under Package 2, companies that qualify for the superior incentives can include, among others, businesses or enterprises that invest in the countryside or outside the Philippines’s highly urbanized areas; that create high-quality jobs; and that invest in priority sectors identified in the Strategic Investments Priority Plan (SIPP) to be developed by the Board of Investments (BOI).
“The proposal under Package 2 does not eliminate incentives. But if we are going to be giving away billions of pesos in tax incentives, we need to make sure that the companies who get to enjoy these incentives truly help us achieve inclusive development, as envisioned by President Duterte,” he added
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