THE Tax Incentives Management and Transparency Act (Timta)—which is a priority economic reform legislation of the Aquino administration, has been a bone of contention for quite some time—pitting business against government, the legislature against the executive, the lower house against the upper house of Congress and even executive departments, namely, the Department of Finance (DOF) and the Department of Trade and Industry (DTI), against each other. After much debate, the Timta has been passed and signed into law.
In October 2015 the two houses of Congress have ratified the bicameral version, which reconciles the conflicting provisions of House Bill 5831 and Senate Bill 2669. And just on December 8, the Timta has been signed into law by President Aquino as Republic Act 10708. In this article, we dissect the Timta and determine its implications to business.
The Timta has, for its avowed purpose, the promotion of fiscal accountability and transparency in the grant and management of tax incentives by developing means to promptly measure the government’s fiscal exposure on these grants and to monitor, review and analyze the economic impact of and to optimize the benefit of such tax incentives.
Tax incentives are defined by the law to refer to fiscal incentives administered by investment promotion agencies (IPAs), such as income-tax holidays, exemptions, deductions, credits or exclusions from the tax base, to “registered business entities.” IPAs pertain to the various and quite numerous government entities created by law to promote investments in the country and to administer tax and nontax incentives, such as the Board of Investments, Philippine Economic Zone Authority and the Bases Conversion and Development Authority, to name a few. Registered business entities are basically those businesses registered with the IPAs.
The Timta has three salient features: (1) filing of tax returns and submission of tax incentives reports; (2) monitoring of tax incentives; and (3) conduct of a cost-benefit analysis on tax incentives.
The first feature on filing of tax returns and submission of tax incentives report is provided for in Section 4 of the Timta. The said provision sets out two requirements. First, all registered business entities are required to file their tax returns and pay their tax liabilities, on or before the deadline provided under the National Internal Revenue Code, as amended, using the electronic system for filing and payment of taxes of the Bureau of Internal Revenue (BIR). Second, all registered business entities are now required to file with their respective IPAs a complete annual tax incentives report of their income-based tax incentives, value-added tax and duty exemptions, deductions, credits or exclusions from the tax base, within 30 days from the deadline for filing of tax returns and payment of taxes. The IPAs are then obligated to submit to the BIR the said annual tax incentives reports within 60 days from the end of the deadline for filing of the tax returns.
Noncompliance with the above filing and reportorial requirements shall subject the registered business entities to penalties to be imposed by the BIR, namely: P100,000 for the first violation, P500,000 for the second violation, and cancellation of the registration of the registered business entity for the third violation.
Section 5 of the Timta lays down the second feature on tax-incentives monitoring. Under the said section, the BIR and the Bureau of Customs (BOC) are to submit to the DOF the following: (a) the tax duty incentives of registered business entities as reflected in their filed tax returns and import entries; and (b) actual tax and duty incentives as evaluated and determined by the BIR. The DOF shall maintain a single database for monitoring and analysis of tax incentives granted. For purposes of monitoring and transparency, the DOF will submit to the Department of Budget and Management the aggregate data.
As to the third and last feature, Section 6 of the Timta mandates the National Economic and Development Authority to conduct a cost-benefit analysis on the investment incentives to determine the impact of tax incentives on the Philippine economy.
Based on the foregoing features, will the Timta cause major upheaval to businesses? Not so much. All told, the Timta is a carefully constructed compromise. Business can breathe a sigh of relief as the Timta does not, in anyway, affect or control the tax incentives, which are now currently being enjoyed by registered business enterprises. The law itself states that it shall not diminish or limit, in whatever manner, the amount of incentives that IPAs may, nor will it prevent, deter or delay the promotion and regulation of investments, processing of applications of registration, and evaluation of entitlement of incentives by IPAs. Gone is the proposed creation of the Tax Expenditure Account in the General Appropriations Act, which would have limited to grant of tax incentives. Also, the IPAs would no longer be required to submit applications for tax incentives to the BIR for validation and modification.
Note, however, that even with a clearly watered down Timta, registered business entities should not be complacent when it comes to tax compliance. While the Timta may not have provided the BIR any degree of control over the grant of tax incentives, the law does provide it with one thing when it conducts assessments: information.
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The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of World Tax Services (WTS) Alliance.
The article is for general information only and is not intended, nor should be construed, as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported, therefore, by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at pierremartin.reyes@bdblaw.com.ph or call 403-2001 local 311.