Treatment of tax incentives as state expenditures backed
September 11, 2014 at 08:32
THE DEPARTMENT of Budget and Management (DBM) has backed a proposed measure at the House of Representatives seeking to include tax incentive grants for businesses as automatic appropriations in the government’s annual spending plan.
“We welcome this bill because we have noted that reporting and monitoring system of tax incentives is quite fragmented,” DBM Director Mercedes P. Navarro told lawmakers during a briefing with the House committee on ways and means.
Yesterday, the committee held its first deliberations on House Bill (HB) 2492 or the Tax Incentives Management and Transparency Act, sponsored by Camarines Sur Rep. Maria Leonor Gerona-Robredo (3rd district).
Tax incentives are given by the investment promotion agencies (IPAs) under the Trade department to stimulate economic growth, particularly in special economic zones.
Income tax holidays are the most common incentives given to investors.
The measure seeks to create a Tax Expenditure Account (TEA) in the annual General Appropriations Act, from which tax incentives will be accounted for as automatic appropriations.
“Remember that for each incentive that we give, that’s a tax foregone,” committee chairman Rep. Romero S. Quimbo (Marikina, 2nd district) told BusinessWorld at the sidelines of the briefing.
“The status quo has to change — there has to be better transparency, accurate and timely reporting of the incentives that are being given out so that we have a fair estimation… whether these are working or not.”
Data from the Department of Finance (DoF) show that the Philippines handed out P145 billion in tax incentives in 2011, or at least 1.5% of the country’s gross domestic product.
Mr. Quimbo however noted that the proposed establishment of a TEA, though supported by the Budget and Finance departments, remains to be “ticklish” pending further discussions on the measure.
For her part, the DBM’s Ms. Navarro stood firm that the tax expenditures should be automatically appropriated through the TEA, and not be subject to the budget process anymore — similar to the government’s debt servicing requirements. She added that there are existing laws providing for incentives to firms.
Though supportive of the transparency measure, representatives from IPAs were apprehensive of the proposal to include tax incentives in the annual budget, saying it might affect the competitiveness of doing business in freeports and ecozones.
“We wonder whether the tracking and monitoring value should really be lodged in the budget, because there are other mechanisms by which we can monitor tax incentives,” said Bases Conversion Development Authority (BCDA) Executive Vice-President Aileen R. Zosa.
HB 2492 is an executive-backed proposal from the Finance department, and has been tagged as a priority measure by the House leadership. The measure tasks the DoF to make a unified database for tax incentives, which shall be maintained in coordination with the Bureau of Internal Revenue and the Bureau of Customs. The bill also proposes the creation of a Joint Congressional Oversight Committee to assess the tax incentives and investment performance given out by agencies in an annual basis. – Melissa Luz T. Lopez
