Corporate tax incentives estimated at 2% of GDP
REVENUE foregone by the government via incentives to large enterprises totaled P301 billion in 2015, equivalent to 2% of the economy, the Department of Finance (DoF) said.
In a statement, Finance Undersecretary Karl Kendrick T. Chua said income tax holidays and special rates account for P86.25 billion of the foregone revenue, while customs duty exemptions account for P18.4 billion.
Quantifying the impact of incentives signals the possibility of a further review of the effectivity of tax exemptions as the government seeks to aggressively raise funds for its infrastructure and social protection programs.
Exemptions from paying the value-added tax ( VAT) on imports added up to P159.82 billion in foregone revenue while domestic VAT exemptions were worth P36.96 billion — totaling P301.22 billion.
He said these incentives do not yet include exemptions from the payment of local business taxes and tax “leakage.”
“In general, we are giving almost 0.8% of GDP so far on tax incentives from these income tax holidays and customs duty exemptions. Together with the VAT, it is P301 billion, or 2% of GDP. These are only the investment incentives,” Mr. Chua said.
The enactment of the Tax Incentives Management and Transparency Act ( TIMTA) in 2016 allowed the DoF to track incentives systematically.
The DoF is preparing the second package of the tax reform program to tighten the standards for potential revenue giveaways. Incentives would now make incentives “performance-based, targeted, time-bound, and transparent,” Mr. Chua said.
However, the proposal would at the same time lower corporate income tax rates to 25% from 30% currently, which is expected to attract investment.
The proposal is expected to be “revenue neutral,” with tax reductions offsetting additional tax collected.
“Through this proposal, the government will be able to ensure that incentives granted to businesses generate jobs, stimulate the economy in the countryside and promote research and development; contain sunset provisions so that tax perks do not last forever; and are reported so the government can determine the magnitude of their costs and benefits to the economy,” the DoF said.
The DoF hopes to submit the tax reform package draft to the House of Representatives on Jan. 15 — when the session resumes. —