DOF asserts legality of Package 2
Finance Assistant Secretary Paola Alvarez has asserted the legality of Package 2 of the Tax Reform for Acceleration and Inclusion Act (TRAIN), claiming that there are no vested rights in the grant of tax incentives to certain businesses because these are “mere statutory privileges, and as such, its granting may be modified or withdrawn at the will of the granting authority, that is, the Congress.”
Debunking the claim by some critics that the TRAIN Package 2 is “unconstitutional” because it supposedly seeks to invalidate existing government contracts with investors on the grant of tax incentives, Alvarez said that “the non-impairment clause may not be invoked in this instance.”
“Jurisprudence supports this,” said Alvarez, who is also the Department of Finance (DOF)’s spokesperson.
Alvarez explained, “In Republic of the Philippines vs. Caguioa, the Supreme Court held that while the tax exemption contained in the SBMA Certificates of Registration of private respondents may have been part of the inducement for carrying on their businesses in the Subic Bay Freeport, this exemption, nevertheless, is far from being contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked.”
“In addition, the same non-impairment clause cannot be invoked in the case of revocations of tax incentives under ‘registrations’ or ‘licenses to operate’ as it must necessarily yield to the government’s police power and power to tax.” she said.
With regard to the business process outsourcing (IT-BPO) industry, she said that while the government recognizes its major contribution as a driver of economic growth, export generation, and job creation, “the best way for this sector to grow is not to rely on incentives and exemptions but to begin to raise their productivity.”
“The government believes that tax subsidies are not the best way to help the industry move forward. Instead, the government will labor to ensure that complementary measures are put in place to improve productivity and ease of doing business, such as through targeted training and skills development,” she said.
“In the end, a person, a firm, or an industry grows and becomes prosperous, not because of exemptions and subsidies, but because of higher productivity.”
Contrary to the claim by some critics, “incentives are not being removed, but being made more fair and accountable” under the TRAIN Package 2, she said. /