BUSINESSES must be given time to adjust to the rationalization of fiscal incentives under the second package of the Comprehensive Tax Reform Program (CTRP) to prevent job losses, a group of economists said on Wednesday.
In a news briefing on Wednesday, the Action for Economic Reforms (AER) said a medium-term transition period of five to seven years is “reasonable” and is a “good compromise” between the government and firms that will see their tax perks removed or reduced.
“A reasonable compromise can be forged. For example, [allowing a] transition [period] is reasonable,” AER Coordinator Filomeno S. Sta Ana III said. “The DOF [Department of Finance] is flexible and they have already signaled their flexibility.”
The AER is very vocal about its support for the fiscal incentives rationalization (FIR), which is part of the second package of the CTRP.
AER Industrial Policy Coordinator Jenina Joy Chavez said the rationalization of fiscal incentives has been a “reform-in-waiting” for the past 23 years.
However, many firms have enjoyed these tax perks for far too long and this, AER said, can be addressed via the FIR.
“A good one that will address issues and can be a compromise for those playing hardball is the transition period,” Chavez said. “We understand if one or two years [they will adjust to the law] but 20 years might be too much and forever is definitely not acceptable.”
The FIR is expected to address problems with the tax perks extended by the government to companies, particularly those in the special economic zones, such as the Philippine Economic Zone Authority (Peza), which have elements of perpetuity, among others.
Apart from income-tax exemptions in the first few years of operation, Peza-registered firms also pay lower taxes. Once their tax exemptions expire, they enjoy a 5-percent tax on their gross incomes, which serve as their income tax annually.
Chavez said some of these firms enjoy this particular tax incentive for as long as 40 years, which prevents other firms, who need incentives the most, from enjoying the same benefit.
The AER said only one out of 200 firms benefit from various tax incentives. Using 2015 data, out of the 600,278 firms in the country, only 2,800 enjoy tax perks.
What is worrisome, Chavez said, is that a number of these firms who benefit from the incentives even belong to the top 1,000 corporations in the Philippines.
Apart from this, Chavez said the FIR also prescribes the grant of “targeted” incentives, which include perks for research and development (R&D) activities.
However, this incentive can be enjoyed for only one or two years—the usual time frame for R&D activities, according to Chavez. “There’s a high possibility for compromise. The important thing is to do it immediately,” Sta. Ana said.
Based on the DOF proposal, the rationalization of fiscal incentives, under the proposal of TRAIN 2, also includes the creation of the Fiscal Incentives Regulatory Board, headed by the finance secretary, will approve incentives.
The primary criteria proposed by the DOF in granting tax incentives includes performance-based indicators, such as actual investment, job creation, exports, country- side development, and research and development.
The criteria also includes granting only targeted incentives to minimize leakages and distortions; ensuring they are time-bound; and transparent, which means these are regularly monitored by the government.