The Department of Finance wants government to have only one agency granting fiscal incentives to enterprises, saying there should be a better accounting of foregone state revenues from tax- and duty-free perks.
Finance Secretary Cesar Purisima said having just one agency will prevent firms from “shopping” for incentives, or from going from one agency to another when one already has declined its application for incentives in the form of tax breaks.
He said knowing exactly how much the government gives out in terms of tax- and duty-free privileges would make it easier to conduct a cost-benefit analysis of the incentives.
“We do not have a specific agency in mind, but the proposal is to just have one agency granting incentives,” Purisima said.
Currently, there are several agencies extending incentives, including the Board of Investments, the Philippine Economic Zone Authority, Clark Development Corp., and Subic Bay Metropolitan Authority.
The DOF’s proposal comes amid the government’s push for higher tax collections to increase its capacity to spend for social services and infrastructure.
DOF likewise believes tax- and duty-free perks are not a significant consideration for potential investors when deciding whether or not to do business in the country.
This is the reason DOF is likewise pushing for the rationalization of terms of fiscal incentives. In particular, DOF wants to limit the granting of incentives only to exporters and businesses belonging in industries considered priorities by the government.
The priority list is reviewed for possible revision once every three years, as suggested by DOF. Also, an exporter that may enjoy the incentives is one that has at least 70 percent of production for export, he added.
Moreover, income tax holidays shall be enjoyed by a beneficiary enterprise only for five years, under the proposal.
DOF estimates that the government would generate an additional P19 billion a year should the terms of fiscal incentives be rationalized.
DOF’s proposals, however, do not sit well with the Board of Investments. BOI believes the foregone tax revenues from the fiscal incentives are far outweighed by the economic benefits of these investments.
Contrary to the DOF’s view, BOI believes lost potential tax collection is a small price to pay given the economic benefits from higher investments.
BOI believes incentives are important considerations weighed by businesses when deciding whether or not to invest in the Philippines.