DOF says ‘profitable firms’ still enjoying gov’t tax perks

The Department of Finance (DOF) said yesterday that big and multinational companies continue to receive tax incentives from the national government despite being profitable resulting in billions of pesos in foregone revenues.

Finance Undersecretary Karl Kendrick T. Chua said that they have identified 645 registered enterprises that continue to enjoy tax incentives even after 15 years in the business, adding many of them are “inherently profitable.”

These redundant and unnecessary tax perks, Chua said brought about 186 billion in lost potential revenues for the national government in 2015 alone.

These registered enterprises, meanwhile, paid out a total of 183 billion combined in dividends, Chua said, citing data submitted by the investment promotion agencies (IPAs) as mandated under the Tax Incentives Management and Transparency Act (TIMTA).

“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,” Chua said.

There is currently a bill in the House of Representatives seeking to lower corporate income tax (CIT) while reorienting the current investment incentives system.

Once passed into law, House Bill 7458 will rationalize the government’s tax incentive regime by removing redundant and unnecessary incentives given to select enterprises registered with the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA) and 12 other IPAs.

Chua said that when the DOF did a cost-benefit analysis of the registered firms in IPAs receiving tax incentives, it came out with three main factors to determine if the perks they are getting are necessary or not, or if these are redundant or non-redundant.

“According to the data from the TIMTA, there are 645 firms receiving incentives for at least 15 years,” Chua said.

“Also in the data we submitted, we gave away in 2015, 186 billion in income tax incentives. But the firms receiving these incentives combined take dividends of 183 billion more than the incentives they get,” he added.

Chua said the DOF study showed that 43 percent of the firms registered with IPAs are worthy of being granted incentives, while the remaining 57 percent are receiving incentives that are already unnecessary or redundant.

Earlier, Chua said the government lost 1178.56 billion in potential revenues in 2016 alone as a result of tax incentives given out to only 3,102 firms registered with various IPAs.

He said that based on data from the Bureaus of Internal Revenue (BIR) and of Customs (BOC) the government had foregone 174.53 billion in revenues from income tax holidays (ITHs), 146.66 billion from special income tax rates and 157.38 billion in Customs duties.

The incentives from VAT and local taxes have yet to be computed.

These foregone revenues as a result of tax incentives given out to select enterprises are collectively termed as “investment tax expenditures.”