DOF: Investors’ tax perks reach P376B in 2015-2016

Finance Secretary Carlos Dominguez III
(File photo by JOAN BONDOC / Philippine Daily Inquirer)

Tax incentives given away to investors – in turn, foregone revenues for the national government – totaled P376 billion from 2015 to 2016, such that the head of the Duterte administration’s economic team sought more support for the second tax reform package aimed at rationalizing these fiscal perks.

In a statement Thursday, Finance Secretary Carlos G. Dominguez III said that the income and customs duty perks granted by investment promotion agencies (IPAs) in 2016 reached P75 billion, citing the latest preliminary data generated under the Tax Incentives Management and Transparency Act (Timta Law).

In 2015, foregone revenues from fiscal incentives amounted P301 billion, of which P104 billion were income tax and customs duties incentives.

A comprehensive review of the country’s tax incentives regime had been mandated under the Timta Law to give an overview of the benefits as well as the costs of giving away fiscal perks to investors.

However, reporting the foregone revenues from incentives covering value-added tax as well as local business taxes are not covered by the Timta Law.

“These initial findings underscore the importance of what we seek to achieve with [tax reform] package two. We should reorient our incentives regime to put into place the key ingredients of inclusive growth—the creation of good jobs for the Filipino worker; stimulating local economies, especially in lagging regions; and promoting research and development,” Dominguez told a group of economists during a meeting last Wednesday.

Dominguez noted that under the current incentives system, most businesses falling under the small and medium enterprise (SME) category pay a corporate income tax of 30 percent—the highest in Asean, while a “small, select few” enterprises located inside IPAs pay a preferential rate of only 6-13 percent and enjoy such low rates “forever.”

“With 123 laws that grant investment incentives and 192 others that provide non-investment incentives to this elite group, the system has become “fundamentally unfair,” especially for SMEs which pay the regular corporate income tax rate,” Dominguez said.

For Dominguez, “our fiscal incentives regime gives so much to a select few and asks so little from them, like promising forever to neglectful partners while the country fails to provide enough to secure the future of its own children.”