DOF disputes PEZA claim on economic contribution

by Mary Grace Padin (The Philippine Star) – 20 Aug 20, 2019

MANILA, Philippines — The Department of Finance (DOF) has disputed the Philippine Economic Zone Authority’s (PEZA) claim it contributed P10 trillion to the economy from 2015 to 2017, saying the agency adopted a faulty method in coming up with its numbers.

In a statement, Finance Undersecretary and chief economist Gil Beltran hit PEZA for having “a weak grasp of basic economics and accounting,” and “erroneously” presenting figures about its contribution to the economy.

According to Beltran, PEZA’s assertion that it contributed P10 trillion to the economy over the three-year period is incorrect as their “method of accounting for its contribution is flawed.”

“For one, PEZA double-counted by adding up the total of exports, investment, and capital equipment, and raw materials, which are from the expenditure side; and wages and taxes, which are from the income side. This is a no-no in basic accounting,” Beltran said.

“Like GDP (gross domestic product), benefits can be measured from either the expenditure or income side, but not both,” he added.

He also pointed out that purchases of raw materials are already part of total exports, which means that PEZA also double-counted raw materials.

“PEZA’s calculations are wrong, and the result is that they’ve bloated their contributions,” Beltran said.

“Assuming their figures are correct in the first place, using the appropriate method to account for exports and remove double-counting wipes out more than half of the P10 trillion they allege to have given back to the economy,” he added.

While the DOF agrees that exports contribute significantly to the economy, Beltran said PEZA should give the “whole truth in making its claims.”

“PEZA says that 70 percent of their supposed contribution, or about P7 trillion, to the economy is because of exports,” Beltran said. “What they are hiding is that PEZA exports contain about 80 percent imported inputs, which don’t add value to the local economy.”

The DOF is currently pushing for Package 2 of the Comprehensive Tax Reform Program (CTRP), which seeks to cut corporate income taxes and rationalize fiscal incentives.

However, Beltran said the DOF is not against granting incentives, noting that about half of the 585 PEZA locators receiving incentives are contributing to the economy.

“DOF Undersecretary Karl Chua even acknowledged that these incentives have yielded some benefits in jobs created and investments in the domestic economy. What the government wants is to modernize the incentives system and make incentives performance-based, targeted, time-bound and transparent, all practiced in our Southeast Asian neighbors,” he added.

The DOF official questioned why PEZA is objecting to the proposed reforms under CTRP Package 2 as it ensures that incentives are granted to companies that contribute to the creation of jobs, human resource development and investments in rural areas.

He said the government should not continue depending on incentives as a band-aid solution to attract investments in the country.

“We value all investors, and no demonization is taking place. In fact, PEZA’s current locators may qualify for the superior incentives being offered under CTRP Package 2, and they are certainly welcome to apply. But the fact remains that the current system has been tilted in the favor of a few companies for so long. Hundreds of billions of pesos in tax incentives have not achieved enough. Package 2 will make things fair and level the playing field,” he said.