The Senate has assured foreign businessmen that a proposed measure that seeks to set annual allocations for tax incentives in the national budget will not hurt the country’s business competitiveness.
Senate President Franklin M. Drilon said the proposed Tax Incentive Management and Transparency Act (Timta) is simply a “reporting requirement for the purpose of transparency.”
“There will be a tax-incentive information section in the annual budget of the Budget for Expenditures and Sources of Financing and it will not be included in the General Appropriations Act, so the grant of incentives will not be affected at all,” Drilon told local and foreign businessmen during the Fourth Arangkada Anniversary Forum in Makati City.
He issued the statement after the Joint Foreign Chambers (JFC) had thrown its support to the Department of Trade and Industry (DTI), which opposed Timta.
“We are not aware of any country in the world that includes the amount of fiscal incentives granted in its annual appropriations law. Incentives are granted for private purposes, and not for public purposes, as intended by the amounts in the appropriations law,” JFC said in its letter to Second District Rep. Romero Quimbo of Marikina City, chairman of the House Committee on Ways and Means. The JFC said requirements being proposed by the measure would cause additional burden to foreign investors and will not be good for the country’s competitiveness.
The DTI had also come out with a position paper outlining its reasons for opposing the measure. For one, the DTI said it could violate a World Trade Organization agreement on subsidies, as incentives coursed through the national budget can be considered a subsidy. If enacted, the department also said the measure could put the country’s competitiveness in limbo, as Congress would have the power to thumb down the provision of incentives.
Drilon clarified that an account for tax incentives will not be established. Instead, the Timta will set up a tax-incentive tracking program for perks granted by investment promotion agencies. He said, however, that Timta will require the submission of reports to Congress and the President.
“Under the proposed measure, a tax-incentive information will be published annually indicating actual and reflected incentives granted to registered business enterprises and qualified individuals. Nothing in this law will be construed to diminish the incentives to investment promotion agencies pursuant to their mandate,” Drilon said.
Earlier, the World Bank had said the Philippine government is losing P200 billion annually by giving out various fiscal incentives that seek to entice local and foreign investors to do business in the Philippines.
World Bank senior country economist Karl Kendrick Chua said these incentives are often extended to firms that do not deserve them. This, he said, only reflects the inequality of the country’s tax system.
“What we are proposing here is that, in terms of tax policy, we need to shift into a system wherein the rates are lower but, then, we broaden the base, meaning, we exempt as few people as possible,” Chua said.
The Washington-based lender is encouraging the government to make fiscal incentives more targeted, transparent, performance- driven and temporary.
Catherine N. Pillas