THE Department of Finance (DOF) is again urging Congress to amend the Tax Incentives Management and Transparency Act (Timta) so the government can make public the list of corporations that receive tax incentives.
The DOF said that its proposal to “introduce improvements” to the Timta, or Republic Act 10708, is part of government efforts to make “fairer, targeted, more accountable and transparent the current system of corporate taxation.”
Finance Undersecretary Karl Kendrick T. Chua said in a statement that when the government gives an incentive to one group, another group pays for it in the form of higher taxes. Thus, those who pay higher taxes to compensate for incentives should have the right to know who is benefiting from their hard-earned money.
According to DOF data, some 3,102 corporations in 2016 paid discounted corporate income tax (CIT) rates of 6 to 13 percent granted by 14 investment promotion agencies (IPAs) on the strength of 336 special laws for corporations.
In contrast, the DOF said about 90,000 small and medium enterprises (SMEs) pay the regular CIT rate of 30 percent, which is the highest in the region. The DOF noted that SMEs employ 2.5 million Filipino workers.
He said the government must stop granting hundreds of billions of pesos yearly to only a select group of companies that have already become profitable through lower taxes and other perks, and have been enjoying these incentives for decades.
Chua said the proposed reform in corporate taxation, which comprise Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP), is “pro-investment and pro-incentive” because it aims to lower the CIT rate, while broadening the tax base through more prudent grant of tax incentives to businesses and improved compliance.
“Incentives should not be given indiscriminately at the expense of building up our more powerful attractions: first, a skilled and hardworking talent pool that needs sufficient human capital investments, second, an ambitious infrastructure development program that requires fiscal commitment, and third, a sizable SME community that deserves to be treated fairly,” he said.
The House of Representatives earlier approved its version of Package 2—the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill last September 10. The Senate version of the bill is still pending at the committee level.
Chua said the approved House bill, which calls for reducing the CIT rate from 30 to 20 percent over 10 years, “is hardly inflationary while creating millions of jobs over the medium term as firms expand with more money at their disposal.”
He also said incentives to local firms should be like scholarships to students – time-bound and with certain conditions.
“The student must pass the course and get a good grade. If he doesn’t, then he loses the scholarship. This is what performance-based means. We propose that firms that enjoy incentives must be bound by a contract on job creation or export targets, for instance,” he said.
“Although we want to help as many sectors as possible—and this is what we currently do with some 336 special laws that grant incentives—we cannot and should not because we cannot afford to give incentives left and right without a commensurate increase in the tax rates. Not to mention that this is a chaos of priorities that demand harmony,” he added.
The DOF official said granting incentives “generously, and without limits,” erodes both the accountability and performance of the enterprise receiving it.
Chua said the Timta, which was enacted in 2015, allowed the government to verify the scale of the problem on the grant of incentives and enabled it to determine that in 2015 alone, it gave out a total of P301 billion worth of incentives.
‘Amend Timta to reveal list of firms with perks’
incentives should have the right to know who is benefiting from their hard-earned money.
According to DOF data, some 3,102 corporations in 2016 paid discounted corporate income tax (CIT) rates of 6 to 13 percent granted by 14 investment promotion agencies (IPAs) on the strength of 336 special laws for corporations.
In contrast, the DOF said about 90,000 small and medium enterprises (SMEs) pay the regular CIT rate of 30 percent, which is the highest in the region. The DOF noted that SMEs employ 2.5 million Filipino workers.
He said the government must stop granting hundreds of billions of pesos yearly to only a select group of companies that have already become profitable through lower taxes and other perks, and have been enjoying these incentives for decades.
Chua said the proposed reform in corporate taxation, which comprise Package 2 of the Duterte administration’s Comprehensive Tax Reform program (CTRP), is “pro-investment and pro-incentive” because it aims to lower the CIT rate, while broadening the tax base through more prudent grant of tax incentives to businesses and improved compliance.
“Incentives should not be given indiscriminately at the expense of building up our more powerful attractions: first, a skilled and hardworking talent pool that needs sufficient human capital investments, second, an ambitious infrastructure development program that requires fiscal commitment; and third, a sizable SME community that deserves to be treated fairly,” he said.
The House of Representatives earlier approved its version of Package 2—the Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill on September 10. The Senate version of the bill is still pending at the committee level.
Chua said the approved House bill, which calls for reducing the CIT rate from 30 to 20 percent over 10 years, “is hardly inflationary while creating millions of jobs over the medium term as firms expand with more money at their disposal.” He also said incentives to local firms should be like scholarships to students—time-bound and with certain conditions.
“The student must pass the course and get a good grade. If he doesn’t, then he loses the scholarship. This is what performance-based means. We propose that firms that enjoy incentives must be bound by a contract on job creation or export targets, for instance,” he said.
“Although we want to help as many sectors as possible—and this is what we currently do with some 336 special laws that grant incentives—we cannot and should not because we cannot afford to give incentives left and right without a commensurate increase in the tax rates. Not to mention that this is a chaos of priorities that demand harmony,” he added.
The DOF official said granting incentives “generously, and without limits,” erodes both the accountability and performance of the enterprise receiving it.
Chua said the Timta, which was enacted in 2015, allowed the government to verify the scale of the problem on the grant of incentives and enabled it to determine that in 2015 alone, it gave out a total of P301 billion worth of incentives.
Image credits: Toto Lozano / Presidential Photo