A TOP official from the Department of Finance (DOF) urged industry leaders to look at the second tax reform package from a broader perspective and examine how this package of reforms will create a level playing field for all sectors.
While understands the modernization of tax incentives has concerned businesses, Finance Undersecretary Karl Kendrick Chua assured that the policy they are submitting doesn’t favor a certain industry or sector but tries to balance all the interests of the country.
“I urge everyone to look at this package of reforms from a bigger picture. Think of the bigger, a brighter future that this reform will give in terms of opportunities for everyone,” said Chua, during the second day of the Philippine Institute of Certified Public Accountants-Cebu Summit held yesterday at the Marco Polo Plaza Cebu.
Panelists during the Tax Reform for Acceleration and Inclusion (Train) discussion argued that modernizing the incentives would affect the country’s competitiveness and might drive investors away as the government is changing the rules in the middle of the game.
Lawyer Eleanor Roque, principal and head of Tax Advisory and Compliance Division at P&A Grant Thorton, suggested that instead of rationalizing the fiscal incentives enjoyed by firms in the economic zones, the government should first solve other pressing issues like the inefficient bureaucracy, lack of infrastructure and corruption, which are major issues that affect the country’s global competitiveness.
Roque said incentives allow companies to expand their businesses, which in turn provide employment opportunities and boost consumption and other business activities in the economy.
In 2015 alone, the country granted P300 billion worth of incentives to fewer than 3,000 firms.
Jonathan Pasadana, director of shared services at TMX Philippines Inc., reinforced Roque’s pronouncements and urged the government to solve these problems rather than take these incentives away from companies that are creating business activities.
He said it is unfair for the government to note that its tax incentive system is costing them over P300 billion in forgone revenues when every peso granted by the government to them is being returned in forms of employment and other forms of economic movements.
“For companies inside the Mactan Economic Zone, these incentives are what is keeping them in the country,” said Pasadana.
“They also have factories within the Asean region and should these incentives be taken out their existence, the country will no longer be viable and it will be beneficial for them to consolidate their operations in other countries that offer better incentives,” he added.
Sixty to 70 percent of the country’s exports are manufactured inside economic zones.
Train 2 seeks to rationalize fiscal incentives and reduce corporate income tax rates gradually to no less than 25 percent from 30 percent.
The proposed bill seeks to harmonize the incentives for companies to make these “performance-based, targeted, time-bound, and transparent.” On Wednesday, Finance Secretary Carlos Dominguez III sought the expertise of several economists, to fine-tune the DOF’s proposal.
“It is in this historic moment that a statement of support from you, our country’s eminent economists, for the second tax reform package would be most welcome as those who benefit from the status quo are quite active and vocal in their opposition (of this reform),” Dominguez said.
Dominguez said the DOF is encouraged by the successful passage of the first tax reform package-the Tax Reform for Acceleration and Inclusion (TRAIN) Law—but is aware that it needs to redouble efforts as Congress deliberates on Package 2.
“Your efforts in this and in previous administrations have laid the foundations of a corporate tax system that will be fairer to all and more beneficial to our fellow Filipinos.” Dominguez told the economists present at the meeting. “The TIMTA (Tax Incentives Management and Transparency Act) law, a legislative victory of our immediate predecessor, has started to illuminate the dark corners of our labyrinthian incentives regime.”
Dominguez said data made available through the TIMTA show that in 2015 alone, about P301 billion in income and value-added taxes, along with customs duty incentives were given to enterprises registered with the various IPAs. Preliminary data for 2016, meanwhile, show that the government gave away P75 billion more in income and customs duty incentives compared from the previous year.
He said these billions of pesos in tax perks do not yet include foregone local taxes and estimates on revenue leakages.
“These initial findings underscore the importance of what we seek to achieve with Package 2. We should reorient our incentives regime to put into place the key ingredients of inclusive growth—the creation of good jobs for the Filipino worker; stimulating local economies, especially in lagging regions; and promoting research and development,” Dominguez said. (With PR)