Peza to do performance audit of tax incentives

SGV, PwC Philippines eyed for the job

The Philippine Economic Zone Authority (Peza) will hire a consultant to audit the impact on the economy of the incentives it has extended to locators over the past two decades, amid claims of the Department of Finance that the tax perks has led to huge revenue loss for the government.

Peza Director General Charito Plaza told reporters in an interview that the audit was prompted by the continuing disagreements between the DOF and the investment promotion agency over the granting of investment incentives.

“We want to have a performance audit of Peza from the time it was created in [1995] to 2018, so we will really know the efficiency of the Peza and the (economic) contribution of every incentive,” she said.

“Maybe there are areas where the DOF is right. I want to see it for myself,” she added.

The move is in line with Peza’s effort to have a closer look at its historical performance, this time through the eyes of an independent audit firm.

The DOF has been pushing to rationalize tax incentives. It previously said that the foregone tax revenue due to the incentives could have been at least P300 billion in 2015 and P178.56 billion in 2016.

But while this shows the costs of the incentives, it does not show the benefits they provide. The picture did not have a cost-benefit analysis for the past few years.

Peza, for its part, has been highlighting the benefits, such as the over P1.3 trillion worth of purchases made by Peza-registered companies from local suppliers from 2014 to 2018.

How they frame the data also reflects their position on tax incentives.

The DOF wants to rationalize the current set of tax perks, which include removing Peza’s 5percent gross income earned tax perk that companies pay in lieu of local and national taxes, while Peza wants a status quo or to even make the package better.

“They (DOF) base it on their own computation, and we also have our own computation," she said.

She said Peza might hire either SyCip Gorres Velayo & Co. (SGV) or PwC Philippines for the job. She did not give a timeline when the audit would start and would be completed.

PwC chair and senior partner Alexander Cabrera told reporters late last year that some locators in economic zones had been asking the company for “exit strategies” in light of the Duterte administration’s second tax reform package.

This develops in the light of the 17th Congress’ failure to pass the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill.

The Trabaho bill, which was passed in the lower house without finishing any study on job impact, will lower the corporate income tax while rationalizing tax incentives.

While it failed to get passed at the Senate last year, the recent victory of Duterte’s allies and bets would likely embolden the refiling of the bill in the upcoming Congress, prolonging the uncertainty over the country’s tax perks.