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DOF wants to make public firms receiving tax perks

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By Chino S. Leyco

The Department of Finance (DOF) proposed improvements to the Tax Incentives Management and Transparency Act (TIMTA) to enable the government to make public the list of corporations that receive tax incentives and how much such perks are costing Filipino taxpayers.

 

Karl Kendrick T. ChuA

Karl Kendrick T. Chua

Finance Undersecretary Karl Kendrick Chua said the proposal forms part of government efforts to make fairer, targeted, more accountable and transparent the current system of corporate taxation, which he has described as a “chaos of priorities that demand harmony.”

On making incentives transparent by amending the TIMTA, Chua pointed out that when the government gives an incentive to one group, another group pays for it in the form of higher taxes, which should have the right to know who is benefiting from its hard-earned money.

In 2016, some 3,102 corporations paid discounted corporate income tax (CIT) rates of six percent to 13 percent granted by 14 investment promotion agencies (IPAs) on the strength of 336 special laws for corporations.

In contrast, some 90,000 small-and-medium enterprises (SMEs) that employ 2.5 million Filipino workers in the country, pay the regular CIT rate of 30 percent, which is the highest in the region.

“This is what we mean by being transparent. We propose that the names of firms receiving incentives be made public, including the amount of their incentives and contributions to society,” Chua said.

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 reforms in corporate taxation, which comprise Package two 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.

“We recognize the value of incentives as a key component of a country’s policy toolkit. We assert, however, that incentives should not be given indiscriminately at the expense of building up our more powerful attractions,” Chua saud.

“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 added.

The House of Representatives has already approved its version of Package two — 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.”

“Moreover, we will continue to support firms or activities that are priority with tax incentives that are performance-based, targeted, time-bound, and transparent,” Chua said.

He compared an enterprise getting incentives to a student who receives a scholarship, which is given not forever and not without 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,” Chua 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,” Chua said.

He said this is why the DOF is proposing that the sectors chosen to receive incentives should “really matter for the future. This is what targeted means. We propose that all sectors that satisfy the criteria set forth in the Strategic Investment Priority Plan or SIPP be granted competitive incentives.”

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