Two influential economic agencies are headed for a showdown after the Department of Finance recently asked the Board of Investments to strike out several protected industries from the government’s 2013 Investment Priorities Plan (IPP).
The crux of the looming dispute is whether the government should continue extending tax breaks to certain industries like shipbuilding, iron and steel and vehicle manufacturing despite them having enjoyed fiscal incentives for many years now and—the DOF believes—providing the Philippine economy with less benefits than what they receive from the state.
“We are severely constrained from supporting other proposed priority areas of investment for 2013,” Finance Undersecretary Jeremias Paul Jr. said in a recent letter to BOI Managing Head Adrian Cristobal Jr.
“Some of these have long been mainstays of past IPPs, such as shipbuilding, iron and steel and vehicle manufacture,” he pointed out. “It would have been helpful for us to be presented with in-depth evaluation of how inclusion in the IPP has actually helped these industries.”
The DOF and the BOI have historically been at loggerheads over fiscal incentives, with the former wanting to collect more taxes from businesses to shore up state coffers while the latter advocates for more tax breaks to entice investors to set up shop in the country.
The latest DOF position paper, however, marked the department’s most aggressive push in recent years to collect more from industries it perceived to be enjoying a free ride on the country’s economic growth without paying the commensurate taxes.
In particular, the BOI has been very protective in recent years of the auto manufacturing sector in terms of providing tax holidays, while the DOF has continually been opposed to granting more incentives. This is especially since the bulk of local industry activity has been limited to vehicle assembly while the actual manufacturing is being done in countries like Thailand.
Instead of continuing to provide incentives to these sectors, the DOF proposed that IPP-status benefits be instead extended to export-oriented investments, qualified micro and small enterprises, and research-and-development activities.