Tax perks in 2011 reached P144B, or 1.5% of GDP

MANILA, Philippines—The government loses the equivalent of 1.5 percent of the country’s gross domestic product (GDP) in foregone revenues due to “unnecessarily complex” and ineffective tax perks for local businesses.

In a statement, the Department of Finance (DOF) urged Congress to pass two measures that would reduce and rationalize tax incentives in the country.

“With the current tax incentives system that has been largely unaccounted and uncoordinated, the government loses billions of pesos in revenues every year which could have helped improve our fiscal position,” Finance Secretary Cesar Purisima said.

The government’s revenue loss from the grant of income tax holidays, reduced income tax rates and duty exemptions to investments reached at least P144 billion in 2011, the initial Tax Expenditures Report (TER) released by the Department of Finance showed.

This represented 1.5 percent of GDP, 9.3 percent of government’s expenditures, or 10.6 percent of government revenues in 2011. These figures were conservative given the report covered only 29 percent of all investment promotion agency-registered firms.

Purisima noted that the International Monetary Fund, in a November 2013 report, cited the need for reforms in local tax perks.

“The need for the rationalization of tax incentives in the Philippines is widely recognized. Numerous [IMF] studies and reports established that the existing regime is very generous and unnecessarily complex,” Purisima quoted the IMF as saying.

The Department is pushing for the enactment of two laws that aim to build a transparent and accountable mechanism in the grant of tax incentives.

One is the Tax Incentives Management and Transparency Act (Timta) that would give the government the necessary tools to account for the magnitude of government support given to a certain sector and the appropriateness of using tax incentives in achieving socioeconomic goals.—Paolo G. Montecillo