THE Department of Finance has defended the need to set the P1-billion threshold for investments that are required to get the approval of the Fiscal Incentives Review Board (FIRB) under the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
The rationale for setting the P1-billion threshold was “data driven,” Finance Assistant Secretary and spokesperson Tony Lambino told the BusinessMirror, noting that only a small portion of investments have exceeded P1 billion in recent years.
“From 2017 to 2019, only 3 out of 409, or less than 1 percent, of Peza [Philippine Economic Zone Authority] investments exceeded P1 billion. Less than a fourth of BOI [Board of Investments] investments exceeded P1 billion, based on BOI data from 2015 to 2019,” Lambino said in a message to the BusinessMirror.
This contradicts the claim made by industry groups seeking a higher threshold for FIRB vetting. They had said a “low threshold” would net so many of the small investments and worsen red tape because of another layer of review and approval.
Lambino argued that qualified investments at the P1-billion level will “likely entail a larger magnitude of tax incentives.”
“Generally speaking, the larger the investment size, the larger the tax expenditure on average,” he said.
Hence, Lambino pointed out this would need fiscal oversight via FIRB, a new body to be formed under CREATE, to be composed of the Secretaries of Finance, Trade and Industry, and National Economic and Development Authority.
Nonetheless, Lambino said the FIRB can raise the threshold based on monitoring of investment data, based on the bill that was passed in the Senate.
On concerns that the FIRB review may turn off foreign investors as this would be an “added bureaucracy,” Lambino argued there will still be “just one approval process, whether it’s the investment promotion agency (IPA) or the FIRB.
“Also, we are preparing an online system to facilitate applications and improve the ease of doing business,” he said.
Economists split
However, political economist and entrepreneur Calixto Chikiamco agreed with the observation of industry groups that the P1-billion threshold is too low, adding that “forcing investors who invest beyond that amount to seek approval from the FIRB aside from the IPAs adds another uncertainty and bureaucratic layer to the process.”
“We are supposed to be simplifying government reviews and bureaucratic procedures, but getting FIRB to do another review just adds to the delay and injects more uncertainty to investors,” Chikiamco said in a message to the BusinessMirror.
He also prefers that there be no FIRB, as it adds another layer to the process. The same argument was made by Sen. Richard J. Gordon, who cast the lone negative vote in the Senate vote on November 26.
In Chikiamco’s view, if there should be a threshold that needs to be set, it should be $100 million or P5 billion.
According to Chikiamco, raising the threshold would mean “less delay, less uncertainty, less bureaucracy for investors [with investments] below P5 billion.”
Two other economists disagree with the industry groups’ request and with Chikiamco’s view.
Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III also told this paper that this call from industry groups to raise the P1-billion threshold is already “too much.”
Raising the threshold for investments required to get the FIRB nod for incentives would not be inclusive, according to former University of the Philippines School of Economics (UPSE) Dean Ramon L. Clarete.
Clarete expressed concern that such a move would prevent small and medium enterprises from accessing much-needed incentives. He said if the P1-billion floor is raised, only foreign investors would be able to access the incentives.
While some simply want to escape the scrutiny of the FIRB, Sta. Ana said what is important is the rigor of granting of the incentives, which the FIRB possesses.
“Besides, the overwhelming majority of firms applying for incentives have thresholds of below P1 billion,” he said. “It is but proper that more diligence is put in place for bigger amounts.”
Under the Senate’s version of the CREATE bill, domestic corporations with total assets, excluding land, of not more than P100 million and net taxable income of P5 million and below will enjoy an immediate 10-percentage-point reduction in the corporate income tax (CIT) rate, from 30 percent to 20 percent.
All other corporations will benefit from an immediate reduction of the CIT rate from 30 percent to 25 percent.
The measure created the FIRB, tasked to review and approve fiscal incentives for projects worth P1 billion and above.
Because of the low threshold of P1 billion, the bulk of investments will go through a longer process with the FIRB, and this is why business groups want investment promotion agencies (IPAs) to be allowed to continue approving majority of new businesses, which can only happen if a higher cap—or beyond P1 billion—for investments that must go through FIRB is set.
“Paano ’yung mga SMEs, hindi nila kaya ’yun?” Clarete told the BusinessMirror. “Very elitist ’yung approach naman nila na siyempre ’yung mga malalaki lang, mga foreign investors lang, [ang makaka-access] [Their approach is very elitist where only large firms, foreign investors can access incentives].”