THE Department of Finance (DOF) has determined that the government gave away P86.3 billion worth of income-tax incentives to firms that paid out a total of P141.8 billion combined in dividends to their respective shareholders for 2015 alone.
Finance Undersecretary Karl Kendrick T. Chua said data from the Securities and Exchange Commission and those reported by investment promotion agencies under the Tax Incentives Management and Transparency Act show that these declared dividends were 164 percent of the income-tax incentives received by firms from various sectors.
He said that such data showing that certain enterprises declared dividends that are way above the incentives they receive from the government prove that many of them are inherently profitable and no longer need such perks for their businesses to prosper here in the Philippines.
About 90,000 small- and medium-scale enterprises (SMEs) in the country pay the regular corporate income-tax rate of 30 percent, and some of the country’s micro-enterprises pay the higher CIT rate.
Favored and highly profitable firms in the manufacturing sector that had received a total of P37.3 billion in income-tax incentives handed out P63.9 billion in dividends to their shareholders in 2015.
This grossly unfair system for SMEs continued in the services sector, which received P31 billion in income-tax incentives but paid out P47 billion in dividends to their shareholders during the same period.
A total of P16.6 billion of income-tax incentives were granted to the nonmanufacturing sector, which declared P30.5 billion in dividends.
In the agriculture sector, companies received P500 million of such incentives and paid out P400 million in dividends, while an unspecified number of firms that reported no dividends were given income-tax incentives amounting to P900 million.
“This means that while SMEs, which employ about 65 percent of Filipino workers in the country, have to pay the steep CIT of 30 percent, the favored big corporations get sizeable tax breaks that enable them to award huge dividends to their stockholders. Filipino taxpayers are, in effect, subsidizing a lion’s share of the profits earned by a select group of corporations that enjoy already redundant incentives under our convoluted CIT system,”
Chua said.
In August, the DOF identified a total of 645 registered enterprises that continue to receive tax incentives even after 15 years in the business, adding that the government gave away P86 billion worth of income-tax incentives to firms that paid out a total of P83 billion combined in dividends.
The DOF is pushing for the approval in Congress of reforms that seek to lower the CIT rate and reorient the complicated fiscal incentives system under Package 2 of the Duterte administration’s Comprehensive Tax Reform Program, which is also known as the Tax Reform for Attracting Better and Higher-Quality Opportunities bill.
The Senate is still deliberating at the committee level its version of the measure, which was filed by Senate President Vicente C. Sotto III and dubbed the Corporate Income Tax and Incentives Reform Act.
Image credits: Toto Lozano / Presidential Photo