Finance Secretary Carlos Dominguez III said the incentives should be reviewed every two years similar to that employed by the Mining Industry Coordinating Council (MICC), which had been auditing mining companies every two years since 2017.
“Incentives are called as such because they are there ostensibly to encourage firms to operate in an industry we want to develop, reinvest their earnings, train their people, create quality jobs, invest in less developed areas or places recovering from conflict or calamity, and so on,” said Dominguez.
“Every peso granted as a tax incentive is a peso off the budget that could have otherwise been spent on infrastructure, health, education or social protection programs that benefit all, and not just for a few. It thus behooves the government to perform a regular audit of these companies to see if these beneficiary-firms have indeed made use of their incentives to make an overwhelmingly positive impact on society. Otherwise, the government would not be doing its job of finding out on a regular basis if these incentives are being put to good use by the favored companies,” he said.
Dominguez said while other countries in Asean like Thailand, Malaysia, Vietnam, and Indonesia have a cap of 5, 10, 15, or 25 years for the incentives they grant, some companies in the Philippines continue to receive incentives every year, even after they have been getting them for as long as nearly 40 years already, without any in-depth review of the costs and benefits of the tax incentives given away to them.
The Philippines gave away an estimated P1.12 trillion in tax incentives and exemptions to a select group of 3,150 companies from 2015 to 2017, noted Dominguez.
“Such foregone revenues include income tax incentives, tax incentives on customs duties and tax incentives on import value added tax (VAT). The estimated amount of P1.12 trillion given away as incentives over that three-year period is over twice the current (2019) budget of the Department of Public Works and Highways (DPWH), which is P549.4 billion,” he said.
Package 2 of the Comprehensive Tax Reform Program (CTRP) or the Corporate Income Tax and Incentive Reform Act or CITIRA seeks to lower the CIT rate gradually from 30 percent to 20 percent and modernize the fiscal incentive system to establish a single menu of superior incentives that are performance-based, targeted, time-bound, and fully transparent.
Dominguez said a select group of some 3,000 companies, including those on the elite list of Top 1,000 corporations, enjoy incentives that allow them to pay discounted tax rates of between 6 percent to 13 percent of net income only.
The DOF earlier clarified that CITIRA does not seek to remove tax incentives, but make sure that they are given for the right reasons.
“We are not saying that all these incentives are not worth it, and we acknowledge that there have been benefits in the form of job creation and investments in the domestic economy,” said Finance Undersecretary Karl Kendrick Chua.
“However, we cannot keep giving away tax incentives indiscriminately and indefinitely, especially if the amount keeps getting bigger and bigger every year,” Chua added.