Tax incentives to become more selective, performance-based
THE Finance department said its second tax reform package, which focuses on rationalizing tax incentives for corporations, will be more selective in granting investment perks, including conditions linked to the investor’s performance.
“Our fiscal incentive program will continue. But it will be subjected to three conditions. Number one, it will be targeted to (certain) industries… number two, it will be performance-based. If you are supposed to export so much, you won’t get it unless you hit those performance targets. Number three, it would be time bound,” Finance Secretary Carlos G. Dominguez III said during a forum in Makati City yesterday.
However Mr. Dominguez did not disclose details on the second package proposal, as it is currently undergoing review.
The second package will consist mainly of a cut in corporate income tax alongside the rationalization of fiscal incentives in order to plug revenue leaks by ensuring only those sectors that need perks have them.
Mr. Dominguez also estimates the department will submit its draft of the second tax reform package to Congress “in the last quarter of the year.”
Finance Undersecretary Karl Kendrick T. Chua said earlier that the package will likely be revenue-neutral.
The department estimated previously that the reduction in corporate income tax rates would cost the government some P34.8 billion in the first year, while gaining the same amount from eliminating some fiscal incentives.
The department is analyzing the data generated by the Tax Incentives Management and Transparency Act, which produced a database for monitoring tax incentives of registered business entities reflected in their filed tax returns and imports, as evaluated and determined by the country’s revenue collecting agencies.
Mr. Dominguez yesterday also allayed concerns on the withdrawal of incentives. “If we just sat back and say okay… Where will we be in five years? In 10 years? Further behind our neighbors? Then we will have to give more tax incentives for them to come in,” he said.
“So think about what will happen if we do not change our tax system. Think about what will happen if we do not do anything. Where are we going to be?” he added.
Despite the first package remaining pending with the Senate committee on ways and means, the department said it is ready to handle simultaneous deliberations when the second package is submitted.