INCENTIVES granted to investors are not wasted as the government earns P4.70 for every P1 it gives away via tax breaks and exemptions, the Department of Trade and Industry (DTI) said on Thursday.
Trade Undersecretary Ceferino S. Rodolfo said incentives are crucial in attracting capital into the Philippines. They are important, he argued, in compensating for the country’s inefficiencies in terms of infrastructure, labor cost and resource availability, among others.
“Not all incentives are wasted, not all incentives are bad. Incentives are able to attract investments into the country, which would not have come in, considering the advantages of other countries in terms of infrastructure, cost efficiencies, labor costs or resource availability. Incentives can help compensate for the disadvantages in locating in our country,” Rodolfo said in a statement.
Citing Tax Incentives Management and Transparency Act (Timta) data from 2015 to 2017, Rodolfo said the 10 largest economic zone firms paid a total of P45.3 billion in taxes. Tax perks availed of by locators amounted to P45.1 billion, resulting in a net revenue of P200 million for the government.
Further, their exports—accounting for 22 percent of the country’s total shipments during the period—reached $40.7 billion, their purchases from local suppliers totaled P110.1 billion and jobs they generated averaged 165,300 yearly.
BOI perks
In terms of incentives granted by the Board of Investments, firms enjoying tax holidays contribute revenue to the government through payment of other taxes at a ratio of P4.70 to P1. In 2017, total incentives provided by the BOI was P27 billion, but total taxes paid by investing firms was P128 billion.
BOI incentives are also time bound, as firms can only enjoy tax break for a period of four years, resulting in zero foregone revenue, Rodolfo said.
“Incentives do not all result in leakages. They definitely result in investments, job creation, expansion of domestic capacities and net positive revenues to the government. Let us manage the transition period better,” the trade official said.
“We are for the tax reform proposal, especially in making the incentives time bound, but we have to carefully manage the transition, and not rush the cutting of incentives, such as the 5 percent GIE [gross income earned] that we promised to the Peza [Philippine Economic Zone Authority] locators,” he added.
Rodolfo said affected locator exporters have expressed concern that the change in the system may compel them to redirect their expansion plans elsewhere and even risk the possible transfer of their current operations to other countries.
As a compromise, Rodolfo and the DTI are pushing for a transition period of up to 10 years in relinquishing the existing tax perks enjoyed by economic zone locators. For the meantime, the GIE can be increased to 8 percent to transmit additional revenue to state coffers that will balance the proposed reduction of corporate income tax (CIT).
Peza: P10 trillion in economy
In a separate statement, the Peza reported firms registered with it poured in P10.05 trillion to the economy between 2015 and 2017. This amount includes investments, exports, salaries and wages, taxes, local purchases, among others, according to Peza Director General Charito B. Plaza.
Investment officials issued the statements following a report by the Department of Finance on Tuesday that the government gave away an estimated P1.12 trillion in tax breaks and incentives to about 3,150 firms from 2015 to 2017. The Peza reportedly accounted for the lion’s share of about P879.1 billion, or 78 percent of the three-year total.
Finance Undersecretary Karl Kendrick T. Chua said “this is a truly massive amount,” as it was apparently over twice the running budget of the public-works agency.
He argued this is reason enough to rationalize the government’s menu of incentives, as this will only enlarge the reported losses resulting from giving away tax perks. Under the second tax reform program, the government will reduce CIT down to 20 percent by 2029, from 30 percent at present, but will overhaul incentives in exchange.