The Department of Finance (DOF) insists the proposed second tax reform package is constitutional, noting there are no vested rights in granting fiscal and other perks to investors.
In a statement on Friday, Finance Assistant Secretary and spokesperson Paola Alvarez said tax incentives were “mere statutory privileges, and as such, its granting may be modified or withdrawn at the will of the granting authority, that is, the Congress.”
The Philippine Economic Zone Authority (Peza) earlier claimed House Bill No. 7458, which contained the DOF’s proposed new corporate income tax regime, would go against a constitutional provision that protected existing government contracts.
The Department of Trade and Industry-attached investment promotion agency had explained the second tax package would remove the tax incentives currently enjoyed by existing Peza-registered firms, even though these perks were promised in their agreements with the government.
But according to Alvarez, the nonimpairment of contracts cited by critics does not hold water, noting previous cases settled by the Supreme Court.
“In Republic of the Philippines vs. Caguioa, the Supreme Court held that while the tax exemption contained in the Subic Bay Metropolitan Authority certificates of registration of private respondents may have been part of the inducement for carrying on their businesses in the Subic Bay Freeport, this exemption, nevertheless, is far from being contractual in nature in the sense that the nonimpairment clause of the Constitution can rightly be invoked,” Alvarez explained.
She said the government’s police power and power to tax were paramount over their claims that the sanctity of contracts can’t just be revoked.
As for the business process outsourcing (BPO) industry, which had also expressed concern over the second tax package, Alvarez said that “while the government recognizes its major contribution as a driver of economic growth, export generation and job creation, the best way for this sector to grow is not to rely on incentives and exemptions but to begin to raise their productivity.”
“The government believes that tax subsidies are not the best way to help the industry move forward. Instead, the government will labor to ensure that complementary measures are put in place to improve productivity and ease of doing business, such as through targeted training and skills development. In the end, a person, a firm or an industry grows and becomes prosperous, not because of exemptions and subsidies, but because of higher productivity,” she said.
Also, under the second tax reform package, “incentives are not being removed, but being made more fair and accountable,” Alvarez said.