Finance Secretary Carlos Dominguez III said that 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.
Dominguez said it is necessary to institute a system similar to that of the Mining Industry Coordinating Council (MICC), which has 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.
“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 for a few,” he 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. 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.”
The Department of Finance (DOF) previously revealed that the Philippines is the only major economy in the world with a system that grants incentives to companies in perpetuity or “forever.”
While other countries in the ASEAN like Thailand, Malaysia, Vietnam, and Indonesia have a cap of 5, 10, 15, or 25 years for the incentives they grant, some companies in the Philippines continue to receive incentives every year, even after they have been getting them for as long as nearly 40 years already, without 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.
Such foregone revenues include income tax incentives, tax incentives on customs duties and tax incentives on import value added tax (VAT).
The estimated amount of P1.12 trillion given away as incentives over that three-year period is over twice the current (2019) budget of the Department of Public Works and Highways (DPWH), which is P549.4 billion.
President Duterte said in his State of the Nation Address (SONA) the proposed corporate income tax (CIT) and incentives reform package said would benefit micro, small and medium-scale enterprises (MSMEs). A select group of some 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 between 6 percent to 13 percent of net income only.
Package 2 of the Comprehensive Tax Reform Program (CTRP) or the Corporate Income Tax and Incentive Rationalization Act or “CITIRA” seeks to lower the CIT 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.
The DOF had earlier clarified that CITIRA, which is the renamed bill on Package 2 filed in the 18th Congress by House ways and means committee chairman Rep. Joey Salceda, does not seek to remove tax incentives, but make sure that they are given for the right reasons.
Finance Undersecretary Karl Kendrick Chua was earlier quoted stating, “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. We need to modernize and improve the incentive system, and this is why President Rodrigo Duterte in his 4th SONA, called on the Congress to immediately pass Package 2 of the CTRP,” he said.
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