Second of three parts
Despite strong opposition from the business sector, the Aquino administration seems bent on enacting the Tax Incentive Monitoring and Transparency Act (Timta) and the Rationalization of Fiscal Incentives (RFI) bill.
Finance Secretary Cesar V. Purisima, the chief proponent of the two fiscal measures, had said the government is losing at least P144 billion in revenues annually due to the grant of income tax holiday (ITH), reduced income-tax rates and duty exemptions to investments.
“This represents a significant loss in revenues: 1.5 percent of gross domestic product, 9.3 percent of government’s expenditures or 10.6 percent of government revenues in 2011. These figures are conservative given the report covers only 29 percent of all IPA-registered firms,” the Department of Finance (DOF) said in its first Tax Expenditures Report covering 2011, released mainly in support of the lobbying for the passage of Timta and RFI.
In 2011, however, data showed that the Board of Investments, Philippine Economic Zone Authority and other investment promotion agencies (IPAs), approved P746.8 billion worth of new investment commitments from local and foreign businessmen—fresh capital infusions that would not have come in if the country’s fiscal-incentives regime was different. See table 2.
This is the bone of contention that business groups want ventilated in opposing the passage of Timta and RFI.
The American Chamber of Commerce in the Philippines (AmCham), as part of the Joint Foreign Chambers (JFC), has stood its ground that any change in the investment scheme will only cast doubt on future investments in the Philippines.
“Why fix it if it isn’t broken? If it’s a question of redundant incentives, there are numerous laws they can tweak, but don’t change the existing one,” said John Forbes, senior adviser to the AmCham, in an interview.
Forbes was referring to the mandatory list of activities and areas being given incentives in the yearly Investment Priorities Plan, by virtue of existing laws, numbering to more than 50. These laws have also irked the DOF as aggravating the redundancy of incentives.
The same sentiment is echoed by other foreign business groups representing the Philippines’s main trade partners and top investment sources, including the European Chamber of Commerce in the Philippines (ECCP) and the Japanese Chamber of Commerce in the Philippines.
“Investors will always compare, more so now that we have the Asean integration. We had $6.2 billion in foreign direct investments last year; that’s because of incentives. If the administration succeeds in putting those measures through and shrink the incentives scheme, future investments will go somewhere else,” said Henry Schumacher, vice president of the ECCP. Japanese Chamber of Commerce and Industry Vice President Nobuo Fujii made the same statement in February during the visit of the largest Japanese business delegation to the Philippines since the 1990s.
The JFC said Timta will “hamper the exercise and operations of IPAs, in view of the rigid government budgetary processes in the passage of the appropriation law, as well as the actual implementation of this system.”
Local business groups echoed their foreign counterparts. The Management Association of the Philippines (MAP) is scoring the stringent policy that the DOF wants in carrying out the Timta, deeming the forfeiture of incentives in the case of noncompliance, as a “harsh and confiscatory” measure.
Makati Business Club (MBC) Executive Director Peter Perfecto, in an e-mail interview, warned that removing the ITH under the RFI bill could have repercussions on the country’s competitiveness in light of the forthcoming Asean integration by the end of the year.
“We maintain that administering incentives require some rationalization efforts, including defining roles and functions of the different IPAs and regulatory bodies and addressing some outdated laws. However, in a period of stiff competition, especially with the Asean Economic Community where all our neighbors, everyone, offer ITH; removing ITH altogether will certainly put us at a disadvantage,” Perfecto said.
On the Timta, the MAP said the transparency measure should not entail stringent penalties from the monitoring body, which, in the measure, would be the Bureau of Internal Revenue.
“This is just an information tool, the penalty for imperfect compliance should not be forfeiture of incentives for the registered enterprise,” said Francisco “Popoy” Filamor del Rosario Jr., president of MAP, via an e-mail interview.
The MBC expressed a similar sentiment in the provision of the Timta in the House of Representatives for a Tax Expenditure Account (TEA).
The fund has been a point of dispute between the DOF and the Department of Trade and Industry (DTI), as the TEA requirement would not just serve as a report of all the incentives given to enterprises in a year, as reflected in the General Appropriations Act. The TEA, as part of the budget, would also require IPAs to forecast how much incentives they will give for the incoming year—an impossible task, according to a DTI official, as the incentives are derived from the income of a company netted in the following year.
The requirement would essentially put a cap on the amount of incentives they can give, as the DTI’s hands would be tied when its forecast falls short of the actual incentives enterprises are entitled to.
“Implementing a cap on incentives may become an obstacle to investment. How do we define the cap? What if there are more opportunities for investments but the budget has already been used up? We need to consider the repercussions very carefully considering that we are competing with our Asean neighbors,” Perfecto added.
To be continued
Catherine N. Pillas, Jovee Marie N. dela Cruz