Tax perks rationalization gets fresh boost

BIR Commissioner Kim Jacinto-Henares. INQUIRER FILE PHOTO

Numerous agencies granting tax perks under a number of different laws have made the country’s fiscal incentives system “wasteful” of government revenues, according to Revenue Commissioner Kim S. Jacinto-Henares.

This is why the Bureau of Internal Revenue (BIR) is supporting the passage of pending bills aimed at rationalizing fiscal incentives—specifically scrapping the income tax holiday (ITH) incentive—as well as creating a tax expenditure account in the national budget to better manage and make more transparent the grant of fiscal perks, Henares said during her presentation titled “Wasteful Tax Incentives” at the United Nations Workshop on Tax Incentives and Base Protection held in New York last April 23.

Henares—a member of the UN Committee of Experts on International Cooperation in Tax Matters—noted that the Philippines’ fiscal incentives regime was being hobbled by three things, namely: poor governance; a “hodgepodge” of available incentives; and lack of transparency.

She cited that the government’s revenue losses from tax breaks given away to investors were on the rise, reaching an estimated P157 billion in 2012 or 1.49 percent of the gross domestic product (GDP) that year.

In a text message on Monday, Henares clarified that the 2012 figure on foregone revenues that she presented at the UN meeting represented a mere 47 percent of all the enterprises that received incentives, which the BIR had been able to track through its large taxpayers service unit. Data for 2013 is still being gathered by the Department of Finance (DOF), she added.

According to Henares, the DOF only has a “limited role” in formulating policies and the actual grant of incentives, which are based on the Board of Investments-led Investments Priority Plan (IPP)—a scheme that has been in existence for about 50 years already.

Also, Henares lamented that while there are about 14 investment promotion agencies (IPAs) with differing tax systems giving away fiscal perks under about 211 laws, there had been “no new investments coming in,” as only “recycled investments” are being generated.

Another problem of a fiscal incentives system being governed by multiple agencies and numerous laws is that such “invites tax avoidance through shifting of profits and indefinite extension of grant of incentives,” while also allowing the grant of “redundant” incentives, Henares said.

Henares also cited as concerns the fact that data on IPA-registered investors and the total amount of incentives they enjoy are not being made publicly available, as well as the lack of a tax incentives monitoring and evaluation system.

The BIR chief disclosed that in 2012, the esti mated P157.1 billion in foregone revenues from fiscal perks was equivalent to 10.2 percent of government revenues and 8.8 percent of government expenditures that year.

In 2012, about P69.8 billion was lost to the duty free importation perks; P64.4 billion was foregone from income tax holidays; and P22.9 billion given away as special rates to investors, data presented by Henares showed.

The 2012 figure was higher than P144 billion granted to investors in 2011, which was also equivalent to 1.49 percent of the 2011 GDP as well as 10.6 percent of revenues and 9.3 percent of expenditures.

Other weaknesses of the Philippines’ fiscal incentives regime include its supposed benefits for investors with “early and high profits,” providing “strong incentives for tax avoidance,” and also its tendency “to attract short-run projects which are less beneficial to the economy,” according to the BIR chief.

For Henares, the ideal situation is one where no ITH given to investors.