While the rationalization of incentives under the proposed second package of the tax-reform measure would affect some investors, the Department of Trade and Industry (DTI) asked them to stay the course, saying that the government is planning to give them other perks.
Trade Secretary Ramon M. Lopez said the Board of Investments (BOI) is assessing other incentives that it can give to investors. This is in line with the government’s move to rationalize perks for businessmen as part of the second package of the Duterte administration’s flagship Comprehensive Tax Reform Program (CTRP).
“The BOI always looks after the concern of investors and have presented positions in many fora when it comes to investment incentives in the ongoing tax reform to ensure we are able to generate more investments. However, part of the reform precisely is to rationalize incentives to make it time-bound, more performance-based, relevant and focused on strategic sectors,” Lopez said in a text message to reporters.
He, however, admitted some firms will certainly lose perks they enjoy today as part of the streamlining of incentives. “As we rationalize, it is unfortunate that there will be companies or individuals that will be hit, but this is exactly the necessary correction to spread more evenly the gains and remove the years of biases and make incentives more strategic.”
Under the CTRP’s second package, the government aims to lower corporate-income tax to 25 percent, from 30 percent. To make up for the revenue losses, fiscal incentives will have to be reassessed and rationalized.
“The provisions in the draft tax-reform package 2 included inputs [from the BOI] that makes incentives more relevant [and] even removes the bias against foreign investors and between export and domestic market orientation,” Lopez said. “Income-tax holidays will be continued, as it is also provided by other countries.”
Lopez also said other perks will be made available for investors, such as double deduction on research and development, accelerated depreciation and net operating loss carryover. “We must benchmark our incentives to make them more competitive compared to other Asean countries.”
Citing the Tax Reform for Acceleration and Inclusion (TRAIN), or the first package of the CTRP, the trade chief said the government is bent on adjusting taxes to make it “more streamlined and relevant.”
“Bottom line [is], we are rationalizing incentives to prevent unnecessary perpetual incentives. But we are enriching quality and relevance of incentives [to make them] time-bound, more performance-based and focused on selected strategic industries,” he said.
VAT as tax incentive
Finance Undersecretary Karl Kendrick T. Chua agreed with the Philippine Exporters Confederation Inc. (Philexport) that zero value-added tax exemption and VAT
refunds should not be categorized as tax incentives, as this will make Philippine exports uncompetitive.
“VAT is consumption tax. If you purchase or imported something, you need to pay VAT like any ordinary Filipino. Then, if you export, you will apply for refund. So they are correct that VAT should not be considered as an incentive,” Chua said told reporters in a news briefing in Malacañang on Thursday.
The paper, submitted to Chua, said this doctrine is followed by economies in the Asean. Unburdened by input taxes, other Asean exporters will, thus, have lower export prices compared to Philippine exporters, who will have to pay additional VAT under the proposed corporate tax law.
Philexport, in a letter to the Department of Finance, expressed reservations over the incentives-reform portion of the draft “Corporate Income Tax and Incentives Reform Act,” the second phase of the Philippine tax- reform program.
The group recommended that “any and all exports are to be given zero VAT exemption on their export products and services, and be given input VAT refunds when [the] new refund system is in place.”
Under the TRAIN Act, an enhanced VAT refund system must be established to grant refunds of creditable input tax within 90 days of VAT refund application.
The Philexport warned that the removal of VAT refunds would compromise the competitiveness of exporting micro, small and medium enterprises, which could lead to loss of jobs and livelihoods.