MANILA, Philippines — Revenue losses from tax perks granted by government to companies likely widened further last year, a trend seen to persist this year as the Duterte administration counts on company savings from fiscal incentives to buttress the economy back from coronavirus-induced collapse.
Projections contained in the proposed 2021 budget showed the government likely extended tax incentives worth P540.8 billion in 2019. If realized, the amount would be 4.3% bigger than the P518.7 billion actual losses recorded in 2018.
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The amount of incentives granted to firms, in turn, represented revenues which would have been collected by government if perks were not implemented. These forgone earnings were the subject of contentious efforts to minimize tax holidays in the past decades until the pandemic struck, and now the government wants them to stay on longer.
Finance Undersecretary Gil Beltran, when sought for comment, said losses this year may go either up or down, depending on the pandemic’s impact on firms. “Export companies were among the hardest hit so right now it’s really hard to tell (how much has been extended),” Beltran said, pertaining to exporters which enjoy the bulk of perks.
“Right now, we care about more in the revenues that we collect, than the revenues we give up,” he said in a phone interview.
Indeed, this might very well be the case as the Duterte administration pushes for the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, under which not only will existing tax incentives last longer, the government is even willing to endure an instant 5% cut in corporate income tax rates to 25% if that means companies retaining workers.
Based on official projections, CREATE, if passed this year, would result into P44.57 billion in revenue losses this year. Erosion in earnings would widen to P97.22 billion next year and P107.61 billion in 2022.
“We think that CREATE will positively affect the bottom-lines of firms,” Beltran said in a text message.
Import exemptions lead
Majority of last year’s losses from tax perks likely came from import breaks that reached P370.1 billion, up 6.3% from P348.2 billion losses booked in the preceding year, figures showed.
Breaking down import incentives, losses from reduced Customs duties were projected to have reached P60.6 billion last year, while those from lower value-added taxes on imports likely ballooned to P309.5 billion.
Meanwhile, income tax exemptions were seen to have amounted to P129.1 billion, a tad higher than 2018’s P129 billion. Of the figure, income tax holidays extended, and therefore lost in revenues by government, likely widened to P66.1 billion. Losses from lower special income tax rates were forecast to have reached P63 billion.
Finally, tax breaks extended to cooperatives were seen to have slashed state revenues by P41.6 billion last year, larger than P41.5 billion in 2018, figures showed.
As the country reels from the pandemic, Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, believes hefty revenue losses is “unacceptable” at this point. “Every cent lost is an opportunity to invest in job generating activities and other important social service such as free healthcare,” Asuncion said in a text message.