Gov’t set to save P35B under rationalized incentives regime

Putting a cap on the imposition of fiscal incentives is expected to generate roughly P35 billion in savings for the government, according to Trade Secretary Ramon Lopez.

This move of making incentives time-bound—meaning they would be granted to companies for a limited period only—formed part of the government’s proposed modernization of the Philippine fiscal incentives regime. At present, many of the fiscal incentives granted by the different investment promotion agencies are “perpetual” in nature, particularly those that are provided under the law.

“This is part of our recovery plan, on how we can modernize and rationalize the incentive system so we can remove the unnecessary foregone revenues. [Making the incentives time-bound] can bring back around P35 billion for the national government. This [amount] represents the foregone revenues due to the  perpetual implementation of certain incentives. And so, if you put a cap there, you’ll be able to save that amount,” Lopez said.

For now, putting a cap on incentives is one of the biggest changes that can be expected in a modernized incentives regime.

The trade chief noted he was already happy with the current length of the income tax holiday pegged at four to six years, further expressing confidence that as long the basic incentives remained the same, investors would remain optimistic of the country’s investment climate.

Lopez earlier said the proposed “modernized” regime also targeted to add new kinds of incentives, albeit time-bound and performance-based. These new incentives included tax deductibility on certain activities such as research and development as well as inclusive business; accelerated depreciation; and net operating loss carry over (Nolco). The planned incentives could be tapped by companies registered with the Board of Incentives (BOI) once the effectivity of the income tax holiday lapses, Lopez added.

The departments of Trade and Industry and Finance, however, were still in talks about the proposed amendments. The target was to come up with a joint proposal that would be submitted to Congress before the end of the year.

Lopez had said the two agencies were already “okay” in principle about the proposed changes, particularly in terms of capping the period for the effectivity of incentives, such as those covered by the Philippine Economic Zone Authority.

Lopez assured investors the Duterte administration would  not change the rules midway and that the incentives would be prospective in nature.