PEZA-DoF flame war

PEZA’s claims to have contributed P10 trillion to the Philippine economy from 2015 to 2017, saying that its data were not “erroneous and misleading,” as Beltran said.

PEZA’s P10-trillion claim was issued in response to a DoF report that the government had foregone P1.12 trillion in tax revenues dur

- tives granted to select companies, the bulk of those, accounting for about P879 billion in lost potential revenue, having been granted by PEZA.

Countering PEZA’s claim, Beltran pointed out that the investment promotion agency had made two amateurish errors in

explained that PEZA had arrived at

counting: It had added the total amount of exports, investments, capital equipment and raw materials from businesses in economic zones — which are expenditures — to the total amount of wages and taxes generated by those businesses, which are income. Like

expressed in either context, but not in both at the same time.

Second, PEZA did not account for imports in calculating the export contribution of economic zone businesses, which the agency had pegged about P7 trillion, or about 70 percent of the supposed P10-trillion economic boost. About 80 percent of manufacturing inputs in ecozones are imported – a factor that DoF has pointed out on numerous occasions – so they contribute nothing to the local economy.

Removing the double-counting and properly accounting for imports would remove about half of the claimed P10 trillion, Beltran concluded. That was a generous estimate on his part; doing a rough calculation based on his explanation shows the real contribution of ecozone activity to the economy in the three years between 2015 and 2017 was between P2.9 trillion and P4.4 trillion. For that, the government had to give up P879 billion, or between 16 and 23 percent of the total contribution, in potential revenue.

In countering Beltran’s conclusions, PEZA did not actually explain how its original claims were correct. Instead, PEZA Director General Charito Plaza highlighted the tax contributions of ecozone companies in the period in question: P44.39 billion to the national government, P17.501 billion to local governments in income tax shares, and P9.674 billion in other local taxes. Besides that P71.565 billion in total taxes, Plaza said in her statement, PEZA also remitted P1.8 billion in dividends to the Treasury from 2016 to 2018, and PEZA’s registered industries contributed 1.5 million direct and 7 million indirect jobs.

That may be, but that total contribution still pales in comparison to the P879 billion in foregone government revenue – unless each of those 8.5 million direct and indirect jobs has an annual value of at least P2.5 million, which is a stretch.

PEZA’s sop to appearing accommodating to the tax reform agenda has been to say that it is not really

incentives, but that the proposed new scheme streamlining and re

is at best disingenuous, because the overwhelming amount of foregone revenue that can be attributed to PEZA suggests very few domestic industries are eligible for

following PEZA’s reasoning, the granting of tax breaks might actually expand through making more companies eligible for them even if the list of available incentives is reduced.

The tax reform being pushed by the DoF, which has the support of the Department of Trade and Industry in the matter, actually answers investors’ concerns better than PEZA’s slavish adherence to the concept of tax incentives. A stable tax and regulatory environment are factors that consistently rank ahead of the availability of incentives in investor priorities; the tax reform package, which also provides for a reduction in overall corporate tax rates, helps to address those priorities.

As has been suggested on several occasions, PEZA and its antireform allies among the various chambers of commerce and other business groups should put up or

incentives. Arguments of what will potentially be lost if incentive rationalization pushes through have to be based on some facts, unless PEZA and its supporters are simply blue-skying their data. That being the case, the existing companies that have indicated they will leave or otherwise reduce their operations if incentives are

to provide the DoF and DTI an opportunity to address their spe

locators who have indicated they would be disinclined to invest in the Philippines should be revealed as well, for the same reason, and to add empirical weight to the antireform argument.

If this cannot be done, that simply means that PEZA’s dissent is speculative and provides no substantial alternative. An opinion, in other words, and one that ought to be dismissed.