Over half of firms granted perks not qualified — DOF

About 57 percent of firms registered with investment promotion agencies (IPAs) are not worthy or in need of the fiscal incentives they are receiving from the government, the Department of Finance (DOF) said.

According to a cost-benefit analysis conducted by the DOF, only 43 percent of corporations currently receiving tax incentives are “worthy” of such perks, while the remaining 57 percent are receiving incentives that are deemed “unnecessary or redundant.”

Finance Undersecretary Karl Kendrick Chua said data derived from the Tax Incentives Management and Transparency Act (TIMTA) showed 645 firms are still receiving incentives even after 15 years in the business.

He said the companies received P86 billion worth of income tax incentives in 2015 and were also able to pay out P83 billion in combined dividends during the same period, proving that they are not in need of tax perks.

“According to the data from the TIMTA, there are 645 firms receiving incentives for at least 15 years. Also in the data we submitted, we gave away in 2015 P86 billion in income tax incentives. But the firms receiving these incentives combined take dividends of P83 billion, more than the incentives they get,” Chua said during a recent House of Representatives ways and means committee hearing on the second package of the Comprehensive Tax Reform Program (CTRP).

“So our question is, why are we supporting certain firms if they are inherently profitable and they pay even more dividends than the incentives

Chua they receive? And these are dividends, which is just a fraction of profit,” he added.

According to Chua, the DOF came up with its cost-benefit analysis based on three main factors to determine whether the incentives received by firms are necessary or not.

These include the length of availment of incentives, profitability and motivation to invest.

Earlier, Chua said the government incurred P301 billion in foregone revenues in 2015 due to the grant of income tax holidays and other perks to some 2,844 firms in the country.

Chua said in 2016, P178.56 billion in potential revenues were also lost as a result of tax incentives given out to 3,102 firms. This does not yet include foregone revenues from value-added tax (VAT) exemptions, local taxes and other leakages.

To fix the system, Chua said the government wants to give incentives which are targeted, transparent, time-bound and based on performance, as proposed under Package 2 of the CTRP.

Package 2 of the CTRP seeks to rationalize the country’s fiscal incentives system, while reducing corporate income tax rates.

It aims to repeal some 123 special laws on fiscal incentives to give way to an omnibus code called the Strategic Investment Priority Plan.

The proposal is also pushing for the harmonization of incentives through the Fiscal Incentives Review Board, and the improvement of the Tax Incentives Management and Transparency Act.