Department of Finance (DOF) is unfazed in pushing for the passage of the Corporate Income Tax and Incentives Reform Act (CITIRA), saying the statements made by the Philippine Economic Zone Authority (PEZA) have been “largely erroneous and misleading.”
“We are not against incentives, and we are not trying to remove PEZA. We are simply trying to fix a long-broken system. When the government grants incentives, we want to do so for the right reasons–such as for job creation, investment in less-developed areas, and investment in infrastructure,” Gil Beltran, DOF undersecretary and chief economist, said in a press statement over the weekend.
“There is no way we will stop fighting for fiscal incentive reform. Director-General Plaza said they are ready for war, but we would at least expect them to be armed with correct information,” Beltran added, in response to the statements made by PEZA director-general Charito Plaza against the CITIRA.
In response to claims that CITIRA might drive away potential investments, Beltran said there is a need look at the bigger picture and that there is no doubt foreign direct investments (FDI) have been on an upward trend since 2011.
“Looking at the data, we will even find that these FDIs are increasingly non-reliant on incentives. While more and more investments are coming into the country, the level of investment pledges through PEZA, which are pledges made with the expectation that incentives will be granted, have been going down,” Beltran said.
“Since our fundamentals are in place, incentives are becoming less and less of a factor for investment. Even before CITIRA or TRABAHO (Tax Reform for Attracting Better and High Quality Opportunities) was proposed, PEZA investment pledges have been going down,” he added.
Beltran said investors no longer seem to base their pledges on incentives given forever, noting that the largest amount of investment pledges in 2018 came from firms registered with the Board of Investments (BOI), which does not grant incentives perpetually.
“Investment pledges with the BOI in 2018 amounted to $1.97 billion. Those with PEZA only amounted to $1.3 billion,” he said.
Previously, the DOF debunked Plaza’s claim that PEZA generated over P10 trillion in contributions to the economy from 2015 to 2017, saying the method in calculating PEZA’s total contributions that she used added items from both expenditures and income, which resulted in double-counting.
Beltran explained that when contrasted with the fact that PEZA has given away the lion’s share of incentives over the past few years, its contributions to the economy are not as grand as portrayed.
“An estimated P5.5 trillion in tax incentives was given to PEZA firms since 1995, while, in return, investment pledges with PEZA over that period amounted to only P3.6 trillion. This means that PEZA gave out more than it got back in promises of investments in the economy. And note that this amount constitutes promises only. Is this not a signal that we have to look more closely at our incentive system and account for the money we give out?
That is what CITIRA seeks to do,” Beltran said.
He also said Plaza’s claim that Package 2 of the Comprehensive Tax Reform Program would hinder the development of small and medium enterprises is unfounded.
“This is simply not true because most incentive recipients are large or foreign firms,” Beltran said.
“Package 2 will actually help more than 989,000 micro, small, and medium enterprises by gradually lowering the corporate income tax rate from 30 to 20 percent, thereby decreasing their tax burden. Only 3,150 firms received tax perks, which all in all amounted to P441 billion, or 3.2 percent of gross domestic product, in 2017. In addition, Package 2 will actually help spur development across the Philippines,” he added.
CITIRA seeks to reform the country’s fiscal incentive system to ensure that it is performance-based, time-bound, targeted and transparent. Under the proposed regime, incentives will be granted to firms whose activities yield a net benefit to the Philippines.
