Gov’t incentives to firms swell to P376 billion in 2015-2016

MANILA, Philippines — Foregone revenues due to the grant of income tax holidays, customs duty incentives, and other perks to large corporations amounted to P376 billion in 2015-2016, according to the Department of Finance (DOF).

Citing preliminary data gathered under the Tax Incentive Management and Transparency Act (TIMTA), Finance Secretary Carlos Dominguez said the government gave away P75 billion in incentives to corporations in 2016 on top of the P301 billion it released in 2015.

“Preliminary data for 2016 shows that we gave P75 billion on top of the P301 billion in income and customs duty incentives we gave away in 2015,” Dominguez said.

Earlier, Finance Undersecretary Karl Kendrick Chua said the government extended P301 billion in tax incentives and other perks to corporations in 2015, equivalent to two percent of the gross domestic product.

He said the government’s corporate income tax efficiency rate has suffered due to the grant of fiscal incentives, reaching only 12.3 percent despite having one of the highest corporate income tax rate in the region.

According to Dominguez, the findings gathered with the implementation of TIMTA underscores the importance of the reforms sought by the DOF under Package 2 of the Comprehensive Tax Reform Program (CTRP).

“The TIMTA law...a legislative victory of our immediate predecessor, has started to illuminate the dark corners of our labyrinthian incentives regime. TIMTA enabled us to verify what we had long suspected, helping us build the case for Package 2,” he said.

Dominguez said the TIMTA data reflects the “structural defects” in the country’s corporate income tax and incentives scheme, which include having the largest corporate income tax rate in the Southeast Asian region at 30 percent.

The secretary said the Philippines also has a complicated tax and incentives regime.

“We have 14 investment promotion agencies, which include the Board of Investments and the Philippine Economic Zone Authority. Outside the tax code, we have 123 laws that grant investment incentives and 192 laws that grant non-investment incentives,” Dominguez said.

He said the government also grants the most generous tax incentive by not imposing a sunset provision on their perks.

To correct these “defects”, Dominguez said the DOF is proposing the Package 2 of the CTRP.

Under the tax reform package, the DOF is proposing to lower the corporate income tax rate on the condition that fiscal incentives are modernized. It also seeks to replace the five percent gross income earned tax granted to certain enterprises with a 15 percent rate on the net taxable income.

It also pushes for the harmonization of incentives through the Fiscal Incentives Review Board, and for the repeal of 123 special laws on incentives to give way for an omnibus code called the Strategic Investment Priority Plan.

“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 said.