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Even
when I was still a young newspaper reporter about 11
years covering the Department of Trade and Industry
(DTI), and later Bangko Sentral ng Pilipinas (BSP) and
the Department of Finance (DOF), these two departments
have already been at odds over tax incentives for
businesses, particularly income-tax holidays. To date,
the two are still at it. And even in Congress, they
can’t seem to agree on which proposed legislation to
support with regards to continuing the grant of tax
perks to various industries.
The
heart of the issue, in my opinion, is that one agency,
the DOF, is tasked to collect taxes while the other
agency, the DTI, is inclined to give them away, so to
speak, in the form of perks or incentives to businesses.
My understanding is that the House of Representatives is
now going over two versions of the proposed
fiscal-incentives bill, with one version reportedly
supported by the DOF as well as the House ways and means
committee, and the other version reportedly supported by
the DTI.
In the
Senate, meantime, it seems that the chairman of the
Senate ways and means committee is not inclined to
support either version. What I hear is that Committee
chairman Chiz Escudero is more inclined to push his own
version: in exchange for tax perks, businesses should be
made to spend part of their income on public
infrastructure. This way, the government’s burden is
somewhat lightened on the expenditure side, as the
private sector steps in. These bits of information are
all unconfirmed, of course, although sources indicate
that the neophyte senator appears to favor a system of
tax write-offs for massive private spending on public
infrastructure, perhaps in the same way that in some
jurisdictions, charitable donations are tax deductible.
Much has
been said for and against the continued grant of fiscal
incentives to business. As a businessman, I am in favor
of it. However, I prefer a system that is more
transparent and accountable, and which clearly shows
what goes where and to whom. One approach is that
instead of granting tax exemptions outright, businesses
can be made to first pay taxes in full, and then to
claim tax refunds or credits later—based on their
entitlements under the law. And then the tax credits can
be applied to whatever tax obligations are outstanding.
While this heavily impacts on a business’s cash flow and
cost of money, particularly start-ups, at least there is
clarity on who pays what and where it goes after.
Another
approach is to make everybody pay taxes, but those
entitled to perks can get their share through a support
fund, i.e. export development fund. In this case,
exporters entitled to perks, and who have paid their
taxes on time, can secure tariff or duty credits for
their future raw-material importations, or financing
support for initiatives such as packaging design
development.
There
are many ways to go about this, and I am certain that
Finance and Trade, as well as Congress, are not lacking
in ideas. But one novel suggestion is truly out of the
box, and that is to make Trade collect taxes as well,
instead of Finance. After all, since Trade is more than
eager to give away tax perks in exchange for investments
and employment, then perhaps it should also handle tax
collection. As such, it becomes fully accountable for
fiscal incentives.
While
Finance is tasked with ensuring that the government has
enough revenues to cover its expenditures, the actual
chore of collecting taxes and monitoring collection can
be delegated to another agency. In fact, at one point,
Congress even contemplated making the Bureau of Internal
Revenue independent of Finance by “corporatizing” it and
creating the proposed National Revenue Authority. In
this sense, even the Bureau of Customs can undergo a
similar transformation.
In the
end, BIR and Customs are the largest revenue earners for
the government. And most of their revenues are from
businesses. With Trade as the state’s lead coordinator
for business development, then perhaps all things
related to business, industry and investment should fall
under a single agency, including their payments of taxes
and duties.
This is
not to say that Finance will abdicate its role of
financing the government. It should retain its lead role
in revenue generation. In fact, what may be delegated to
Trade is just the chore of collecting taxes and
monitoring tax collection, by the BIR and Customs, and
particularly from business and industry. And at the end
of the day, with taxes collected from everybody, a fixed
percentage of collection may be designated or earmarked
for tax or nontax perks for businesses and industries
entitled to such under law. To be managed and disbursed
by Trade, of course. After all, Trade can’t give away
what it can’t collect, right?
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