DOF lists 645 enterprises accorded with P86-billion ‘redundant’ perks in 2015

This file photo shows people walking by the Department of Finance (DOF) building on Roxas Boulevard, Manila.

The Department of Finance (DOF) has identified a total of 645 registered enterprises that continue to receive tax incentives even after 15 years in the business, adding that such investment perks usually accorded to big or multinational firms have become redundant and unnecessary

Finance Undersecretary Karl Kendrick T. Chua said data reported by investment promotion agencies (IPAs), as mandated under the Tax Incentives Management and Transparency Act (Timta), also showed that, for 2015 alone, the government gave away P86 billion worth of income-tax incentives to firms that paid out a total of P83 billion combined in dividends.

“According to the data from the Timta, there are 645 firms receiving incentives for at least 15 years. Also, in the data we submitted, we gave away in 2015, P86 billion in income- tax incentives. But the firms receiving these incentives combined take dividends of P83 billion more than the incentives they get,” Chua said during a recent House Committee on Ways and Means hearing.

The committee, chaired by Rep. Dakila Carlo E. Cua, has so far conducted five hearings on House Bill  7458, which aims to lower corporate-income tax, while reorienting the country’s complicated investment-incentives system that has led to such redundant and unnecessary perks extended to select enterprises registered with the Board of Investments, Philippine Economic Zone Authority  and 12 other IPAs.

“So our question is, why are we supporting certain firms if they are inherently profitable, and they pay even more dividends than the incentives they receive? And these are dividends, which is just a fraction of profit because part of profit is the one you retain as earnings,” he added.

Chua explained that, when the DOF undertook a cost-benefit analysis of the registered firms on IPAs receiving tax incentives, it came out with three main factors to determine if the perks they are getting are necessary or not, or if these are redundant or nonredundant.

These factors include: the length of the availment of incentives, to find out whether a firm has been receiving incentives for more than 15 years; profitability, to verify whether the firm is inherently profitable or not and whether it is already earning three times the median of the industry it belongs to; and the motivation to invest, to find out why they chose to relocate here.

He added that the DOF study showed that 43 percent of the firms registered with IPAs are worthy of being granted incentives, while the remaining 57 percent are receiving incentives that are already unnecessary or redundant.

For 2016 the government lost P178.56 billion in potential revenues as a result of tax incentives given out to only 3,102 firms registered with various IPAs, according to Chua.

Based on data from the Bureau of Internal Revenue and Bureau of Customs, the government had foregone P74.53 billion in revenues from income-tax holidays, P46.66 billion from special income-tax rates, and P57.38 billion in customs duties. The incentives from value-added tax (VAT) and local taxes have yet to be computed.

Chua said the data collated by the DOF for 2016 do not yet include foregone revenues from the VAT exemptions on imports and local VAT that enterprises registered with IPAs also get to enjoy. It also does not yet include the foregone local taxes and leakages that may arise as a result of abuse of transfer pricing.

Foregone revenues from investment incentives, excluding VAT and local tax privileges, grew 71.03 percent in 2016 from the previous year’s figure of P104.40 billion and were 52.52 percent higher from 2015 projections.

These revenue losses are expected to increase to P196.02 billion or by 9.77 percent in 2017, according to the DOF.

 

Image Credits: Roy Domingo

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