Two lawmakers are pushing for a measure seeking to promote investments in priority industries through a more efficient administration of fiscal incentives.
Deputy Speaker Party-list Rep. Sharon S. Garin of Aambis-OWA and Party-list Rep. Rodel M. Batocabe of Ako Bicol recently filed House Bill 7364, or An Act Rationalizing the Grant and Administration of Fiscal Incentives, which seeks to streamline the design and administration of fiscal incentives to reduce tax leakages, and increase transparency and fairness for all.
According to Garin, the tax reform is a legislative priority of the Duterte administration, and with this bill “we are instituting changes to the fiscal incentives regime.”
“It is time that we revisited the fiscal incentives we give to foreign and local investors to make them more effective and transparent. Like any measure to promote investments, the fiscal incentives should be given to priority industries and economic activities to move our country to our desired development path,” Garin said.
The lawmakers cited government estimates that the current investment tax incentive regime costs some P301 billion in foregone income tax, customs duties and value-added tax (VAT).
Batocabe said the secondary objective of the measure is to align the role of the private sector with the country’s overall industrial development, which will have an impact on job generation and linkages in the value chain.
He added the Philippines lags behind its regional neighbors in attracting foreign direct investments due, in part, to gaps in infrastructure, energy and government policies.
“For decades, fiscal incentives were given to investors to fill in for these gaps. However, the poor design and mismanagement of the country’s fiscal incentives regime has made it prone to systematic abuse and caused major leakages,” he said.
“The types of incentives we give should help investments grow and encourage linkages with other economic sectors and industries. Incentives should generate jobs, facilitate research and development, and enable technology transfer,” Batocabe said.
Based on the 2015 data of the bureaus of Internal Revenue (BIR) and of Customs (BOC) on income-tax holidays, the authors of the bill said special income-tax rates and Customs duty exemptions given to investors cost the government P104.4 billion. The leakage from VAT exemptions was bigger at P196.6 billion for the same year.
“Despite generous tax incentives, the Philippines lags behind its regional neighbors in attracting foreign direct investments. The high cost of power, poor infrastructure and flawed policies have been blamed for these gaps. However, we should not also forget that the poor design and mismanagement of fiscal incentives led to its systematic abuse and caused major revenue losses. These revenues could have been used for infrastructure and energy development, and other measures that would increase the country’s competitive advantage, particularly in the countryside,” Batocabe said.
“We want to make sure that the incentives we give attract the right kind of investments and that these investments deliver positive results for the economy. We want to measure activities receiving incentives against their actual contributions,” he added.
The measure said activities included in the Strategic Investments Priority Plan (SIPP) will be qualified to get incentives from the government. To be included in the SIPP, an activity must meet various criteria, among which are identification as a priority in the Philippine Development Plan or its equivalent, and inclusion in the National Comprehensive Industrial Strategy or its equivalent. Activities implemented in the 30 poorest provinces are given preferences.
Before incentives are given, qualified activities will be assessed based on the following: amount of investments; generation of full-time employment; adoption of inclusive business activities and value-added production by micro, small and medium enterprises; use of cleaner, energy-saving and other relevant new technology; installation of adequate environmental protection systems; addressing gaps in the supply/value chain and/or moving up the value chain or product ladder; stimulation of forward and backward linkages or creation of value added activities; and commercialization of ideas and introduction of innovation activities.
Export activities must show capacity to earn substantial foreign exchange, and progressively increase value addition and linkages to the domestic economy.
The bill said these requirements shall be reviewed every three years.
The measure also limits the incentives given to enterprises in the extractives sector. Enterprises in the exploration, extraction, development or disposition of oil, gas and mining resources shall be entitled to receive incentives only if they are engaged in the intermediate processing of 100 percent of their output. Processing is meant to create linkages to the domestic economy.
Garin said the bill will strengthen the accountability of incentives, putting in place reporting and transparency requirements, as well as mechanisms to monitor and evaluate the results and impact of fiscal incentives.
“We want to address the complex administration of fiscal incentives. We want investment promotion agencies to coordinate among themselves and with the national government. To simplify the administration of fiscal incentives, we are proposing the reorganization and strengthening of the Fiscal Incentives Review Board [FIRB],” Garin added.