Finance continues tracking revenues foregone due to perks

THE DEPARTMENT of Finance (DoF) argued on Monday that redundant tax incentives have continued to take more from the economy than provide benefits, with 645 enterprises enjoying such perks even after 15 years in business.

This, the department said in a press release, showed that investment perks given to a number of the big companies “have become redundant and unnecessary” since “many of them are inherently profitable.

Moreover, “[r]evenue losses are expected to increase to P196.02 billion or by 9.77% in 2017,” the DoF said in a statement on Monday.

The Finance department said that revenues forgone due to redundant tax perks amounted to P178.56 billion in 2016. In 2015, such potential revenues added up to P301 billion.

The DoF noted that its estimates do not yet include revenue leakages that may arise as a result of abuse of transfer pricing.

Citing data provided under the Tax Incentives Management and Transparency Act (TIMTA), the DoF said that the government gave away P86 billion worth of income tax incentives to firms in 2015 that paid out a total of P83 billion combined in dividends.

“So our question is, why are we supporting certain firms if they are inherently profitable and they pay even more dividends than the incentives they receive? And these are dividends, which is just a fraction of profit because part of profit is the one you retain as earnings,” Finance Undersecretary Karl Kendrick T. Chua was quoted in the statement as saying.

The DoF said that only 43% of the firms registered with investment-promotion agencies are “worthy” to receive fiscal incentives, with the balance considered to be “unnecessary or redundant.”

In a public hearing of the House of Representatives Ways and Means committee on the second tax reform package last week, Mr. Chua presented the Finance department’s cost-benefit analysis of giving away tax perks, finding that the economy on the average gets only 60 centavos per

peso of tax incentives granted.

It also noted that perks whoso costs outweighed benefits were granted mostly to non-manufacturing and service-sector firms.

The House committee will meet today to present the consolidated bill of the Corporate Income Tax and Incentives Reform Act, after a technical working group convened on Sunday.

The committee on Wednesday last week had already approved the bill in principle.

In its current form, House Bill No. 7458 seeks to lower the corporate income tax annually starting 2019 from 30% to 20% to make it competitive in Asia. The DoF’s version meanwhile proposed to cut it only up to 25%, where a one percentage point cut will be warranted per P26 billion collected from reducing fiscal incentives.

The DoF said that the Philippines collects at a lower efficiency even with a higher tax rate, compared to rivals in the region.

The bill also seeks to replace the existing five percent gross income earned tax incentive in lieu of all other national and local taxes with a 15% tax on net income, while capping this perk at five years, to be granted only to sectors identified in the Strategic Investment Priorities Plan. —