Rationalized tax perks to make PH attractive

MANILA, Philippines—The fight to cut down excessive corporate incentives would make the Philippines a more attractive investment destination as a more rationalized framework should give risk-taking entrepreneurs a slight edge over established players.

Commissioner Kim Jacinto-Henares of the Bureau of Internal Revenue (BIR) once again made the case for the rationalization of tax incentives, noting that granting these perks to everyone benefited no one.

“If all companies are given these incentives, no one benefits,” she said, noting that granting incentives to the majority defeated their purpose, which was to give start-ups an edge over the competition.

“A company that’s already profitable has an obligation to share (those profits) with the country,” she said.

The rationalization of fiscal incentives is the Department of Finance’s main priority bill pending before Congress.

Under House Bill No. 2765 filed by Rep. Luigi Quisumbing, government agencies would be required to clearly outline the desired objectives of incentives such as income tax holidays granted to companies. If these incentives are to be renewed, agencies must show that the desired outcomes outweigh the cost to the government.

In a previous statement, Finance Secretary Cesar V. Purisima said the passage of the bill would also help the government “identify which sectors use incentives most effectively.”

Henares said in 2012, P200 billion worth of tax incentives were granted to large companies, which represented less than a third of all firms that get tax perks from the government. In the same year, P85 billion worth of incentives were granted to importers, according to data from the Bureau of Customs.

These funds would have been enough to wipe out the government’s budget deficit of P235 billion for 2012. It would have also been more than enough to cover the state’s 2013 shortfall of P164.1 billion.

Henares admitted that fiscal incentives in the form of tax and other perks played an invaluable role in supporting new and innovative businesses, which, in turn, helped create more jobs. However, she said some companies, particularly profitable ones with stable operations, no longer needed tax perks.

Both the International Monetary Fund and the World Bank have supported the rationalization of fiscal incentives in the Philippines, saying this would be a key measure that would help the government fund its expensive infrastructure program and support economic growth.

The Aquino administration plans to increase infrastructure spending to the regional average of 5 percent of gross domestic product by 2016 from less than 3 percent last year.