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 Department of Finance (DOF).
Such foregone revenues include income tax incentives, tax incentives on customs duties and tax incentives on import value added tax (VAT).
Among the investment promotions agencies (IPAs) that granted incentives to registered enterprises, the Philippine Economic Zone Authority (PEZA) gave away the lion’s share of tax incentives worth about P879.1 billion, or approximately 78 percent of the three-year total.
“This is a truly massive amount. To put things in the right perspective, P1.12 trillion that we gave away in incentives over that three-year period is over twice the current (2019) budget of the Department of Public Works and Highways (DPWH),” said Undersecretary Karl Kendrick Chua.
The DPWH budget this year is P549.4 billion.
Package 2 of the Duterte administration’s Comprehensive Tax Reform Program (CTRP) aims to ensure that any incentives granted are worth it, Chua said.
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.
“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,” he added. “The government could have implemented so many programs and projects with P1.12 trillion that was given away to companies. ”
The DOF study showed that approximately P301.2 billion in incentives was granted in 2015, P380.7 billion in 2016, and P441.1 billion in 2017.
“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,” said Chua.
“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 Duterte in his 4th State of the Nation Address (SONA), called on the Congress to immediately pass Package 2.
In his SONA, President Duterte said Package 2 would energize micro, small, and medium enterprises (MSMEs), giving them with more capital to expand their businesses, benefiting even more Filipinos.
To modernize our incentives regime, Package 2 will establish a single menu of superior incentives that are performance-based, time-bound, targeted, and transparent.
It will lower corporate income taxes (CIT), bringing the Philippine CIT rate closer to the ASEAN (Association of Southeast Asian Nations) average.
Right now, favored companies, a number of them on the elite list of Top 1,000 corporations, pay discounted CIT rates of 6 to 13 percent while most other companies that employ a majority of Filipino workers pay the regular rate of 30 percent, which is the highest in the region, according to Chua.
Chua explained that, under the fair and more accountable incentive regime proposed under Package 2, companies that qualify for the superior incentives can include, among others, businesses or enterprises that invest in the countryside or outside the Philippines’ highly urbanized areas; that create high quality jobs; and that invest in priority sectors identified in the Strategic Investments Priority Plan (SIPP) to be developed by the Board of Investments (BOI).
“The proposal under Package 2 does not eliminate incentives,” Chua emphasized. “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.”
The DOF has identified Package 2 and the rest of the packages under the CTRP as among their priority bills for the upcoming 18th Congress.
In his SONA last July 22, President Duterte reiterated his strong support for tax reform and asked the Congress to pass the remaining packages of the CTRP in the near future.
These include Package 2, or the corporate income tax and fiscal incentives reform, Package 2+ (excise taxes on alcohol, e-cigarettes and vapor products), Package 3 (real property valuation and assessment reform), and Package 4 (passive income and financial intermediary taxation).
Following the President’s endorsement of the remaining CTRP bills in his latest SONA, Dominguez expressed the hope that Mr. Duterte’s appeal for the congressional approval of these tax reforms would provide lawmakers a strong impetus to pass these investment-friendly and job-generating measures within the year.
Dominguez also urged the Congress to consider the President’s SONA statements against smoking and binge drinking as “a call to action” on passing new legislative measures that further seek to impose higher taxes on electronic cigarettes and alcoholic drinks primarily as pro-health measures.
“We are hoping that the President’s latest pitch for tax reform in his 4thSONA would serve as a strong impetus for the members of the 18th Congress to act on the remaining CTRP packages along with the new excise taxes on tobacco and alcohol products before the year is over,” Dominguez said.
Dominguez thanked members of the House of Representatives, led by newly elected Speaker Alan Peter Cayetano, for refiling the Duterte administration’s remaining tax reform bills before the opening of the 18th Congress.
“We will go to the Senate and hope they will also file the same bills so we could get these passed and benefit the economy as a whole,” Dominguez said.
“Completing the entire tax reform program, as endorsed by the President in his 4th SONA, will also ensure a sustainable revenue flow for the government’s infrastructure and human capital development programs, while securing our long-term fiscal stability,” he said.
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