Aquino administration renews fiscal incentives rationalization

With the enactment of the sin tax reform and reproductive health measures into law, the Aquino administration now wants legislators to pass in the coming 16th Congress another controversial bill that has been pending for 15 years.

The fiscal incentives rationalization bill has been facing strong opposition due to its provisions, particularly the lifting of the tax- and duty-free incentives of several industries.

“The reproductive health and sin tax reform laws were 15 years in the making. Now, we are hoping Congress [will] finally pass the fiscal incentives rationalization bill that has also been pending for about 15 years,” Internal Revenue Commissioner Kim Henares said last week.

The bill has been certified a priority measure by the Aquino administration’s economic team. Finance Secretary Cesar Purisima earlier said that the tax perks granted to industries that could stay viable even without the incentives should be lifted to boost government revenues.

Two of the industries that should no longer be granted income tax holidays are low-cost housing development and mining exploration, Henares told the Inquirer.

Henares said that, according to the law, a low-cost house is one that is priced at P3 million and below. Based on the hefty price tag, the houses should not be considered “low-cost” and developers should not be entitled to incentives, she explained, citing the government’s potential revenue loss.

“Why give incentives to the developer? A better measure is to give subsidies directly to the poor,” she suggested.

On mining, Henares said the government should no longer grant income tax holidays to companies engaged in exploration. She said the country’s rich natural resources are incentive enough, and mining companies in the Philippines can stay profitable even without the tax perks.

The BIR and its head agency, the Department of Finance, said the tax incentives granted to various industries continued to weigh down the country’s tax effort.

A closely watched indicator of a country’s credit worthiness, tax effort is the ratio between the government’s collection of taxes and import duties and the economy’s gross domestic product.

Ideally, growth in tax collection should at least match the economic growth pace. However, this is not the case in the Philippines because many profitable industries do not pay the proper taxes to the government, Henares said.

The DOF earlier reported that the tax effort stood at 11.9 percent in the first quarter, down from the 12.5 percent reported in the same period last year. The Philippines’ tax effort is lower than those of many countries with similar credit ratings.