The Department of Finance (DOF) is pushing for the rationalization of tax incentives to investors as it had resulted in a total of P1.12 trillion in foregone revenues for the government between 2015 and 2017.
In a statement Tuesday, the DOF said a recent study it conducted showed that the country’s investment promotion agencies gave away P301.2 billion in tax and other fiscal perks in 2015; P380.7 billion in 2016, and P441.1 billion in 2017.
These fiscal incentives were enjoyed by a “select group” of 3,150 firms, the DOF added.
“We are not saying that all these incentives are not worth it and we acknowledge that there have been benefits in the form of job creation and investments in the domestic economy. However, we cannot keep giving away tax incentives indiscriminately and indefinitely, especially if the amount keeps getting bigger and bigger every year,” Finance Undersecretary Karl Kendrick T. Chua said.
“We need to modernize and improve the incentive system and this is why President Duterte in his fourth State of the Nation Address called on the Congress to immediately pass package 2,” Chua added, referring to the proposed measure earlier known as Tax Reform for Attracting Better and High-Quality Opportunities bill.
Package 2 will reduce the incentives being enjoyed by investors while also gradually slashing the corporate income tax rate to 20 percent from 30 percent at present—the highest in Asean.
For Chua, the three-year cumulative total of tax perks on income, customs duties and import value-added tax granted by the government was “a truly massive amount.”
“To put things in the right perspective, the P1.12 trillion that we gave away in incentives over that three-year period is over twice the 2019 budget of the Department of Public Works and Highways,” which amounted to P549.4 billion, Chua said.
“Every peso given away in tax incentives is a peso that could have gone to constructing roads, classrooms or health centers, or to hiring more teachers, doctors and nurses. The government could have implemented so many programs and projects with P1.12 trillion that was given away to companies,” Chua added.
Chua reiterated that the comprehensive tax reform program’s package 2 would ensure that any incentives granted would be worth it.
In order to keep receiving incentives, companies must fulfill their commitments such as creating good jobs or directing investment outside highly urban areas in exchange for special tax treatment over a specified number of years, he said.
“The proposal under package 2 does not eliminate incentives. But if we are going to be giving away billions of pesos in tax incentives, we need to make sure that the companies who get to enjoy these incentives truly help us achieve inclusive development, as envisioned by President Duterte,” according to Chua.
The DOF’s proposed tax reform package 2 will still impose a sunset provision of 2-5 years for firms with existing incentives, after which they can apply under the proposed Strategic Investment Priorities Plan, a new set of perks which will replace the BOI’s Investment Priorities Plan.
For new applicants or those reapplying for tax incentives, they will be offered a reduced corporate income tax rate that is 10-percentage points below the regular rate for five years, on top of a maximum two-year extension.
The DOF is also reviewing if it can keep the prevailing 5-percent gross income earned incentive, but at a higher rate.