Dominguez wants biennial audit of tax perks to weed out undeserving firms

Tax incentives given to companies must be reviewed every two years as the Philippines has been too generous in giving away tax incentives to a select group of companies, according to the head of the Duterte administration’s economic team.

In a statement Tuesday, Finance Secretary Carlos Dominguez III said it was necessary to institute a system similar to that of the Mining Industry Coordinating Council, which had made it a practice to conduct regular audits of mining companies once every two years beginning in 2017.

“Incentives are called as such because they are there ostensibly to encourage firms to operate in an industry we want to develop, reinvest their earnings, train their people, create quality jobs, invest in less developed areas or places recovering from conflict or calamity, and so on,” said Dominguez.

The Department of Finance (DOF)—seeking to reform the country’s antiquated tax regime—maintains the Philippines is the only major economy in the world with a system that grants incentives to companies in perpetuity.

“Every peso granted as a tax incentive is a peso off the budget that could have otherwise been spent on infrastructure, health, education or social protection programs that benefit all, and not just a few,” the Finance chief said.

“It thus behooves the government to perform a regular audit of these companies to see if these beneficiary-firms have indeed made use of their incentives to make an overwhelmingly positive impact on society,” he added. “Otherwise, the government would not be doing its job of finding out on a regular basis if these incentives are being put to good use by the favored companies.”

While other countries in the Asean like Thailand, Malaysia, Vietnam and Indonesia have a cap of five, 10, 15, or 25 years for the incentives they grant, some companies in the Philippines have been receiving incentives every year for the past 40 years sans any in-depth review of the costs and benefits of the tax incentives given away to them.

The Philippines gave away an estimated P1.12 trillion in tax incentives and exemptions to a select group of 3,150 companies from 2015 to 2017, according to the DOF. This is equivalent to over twice the 2019 budget of the Department of Public Works and Highways, which is P549.4 billion.

Such foregone revenues include income tax incentives, tax incentives on customs duties and tax incentives on import value added tax.

President Duterte said in his State of the Nation Address the proposed corporate income tax and incentives reform package would benefit micro-, small- and medium-scale enterprises. At present, the select group of over 3,000 companies—including those on the elite list of Top 1,000 corporations—enjoy incentives that allow them to pay discounted tax rates of only 6-13 percent of net income.

Package 2 of the Comprehensive Tax Reform Program or the Corporate Income Tax and Incentive Reform Act (Citira) seeks to lower the corporate income tax rate gradually from 30 percent to 20 percent and modernize the fiscal incentive system to establish a single menu of superior incentives that are performance-based, targeted, time-bound and fully transparent.