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MANILA, Philippines – Senator Ralph Recto wants to trim more than 100 laws that give tax exemptions to private companies, noting they cost the State P282.7 billion annually.
“If one earns an income, why exempt them from paying taxes. Their employees are paying income taxes and why should they (tax-exempt companies) be exempt,” Recto asked during a public hearing Monday on the Fiscal Incentives Rationalization Bill.
Recto said private companies now find refuge in over 100 laws used as a tool by the government to entice foreign investments. Unvalidated, however, in terms of their actual economic impact, such tax incentives result in marginalized sectors being deprived of the resources that normally fund the delivery of basic services.
“For almost three decades, the Investment Priority Plans have been ineffective in attracting more significant and sustained investments. Jobs created could not even represent 1 percent of our total employment levels,” he said.
“We are lagging behind our neighbors in terms of foreign direct investments despite our generous incentives package. We could not even recoup half of our forgone revenues ofP P282.76billion as we are only getting $2.9 billion in foreign investments,” he added.
Recto said the bill seeks to rationalize the system of fiscal incentives that paved the way for a regime of what have been described as irrational investment plans and wasteful tax breaks. The bill aims to streamline the administration of fiscal incentives.
“This measure also aims to end the indiscriminate dispensation of fiscal perks to investors who are primarily motivated by the prospects in the domestic market and investments that would have been made even without incentives” anyway, Recto added.
“These redundant incentives, in the form of income tax holidays and VAT exemptions, are enough to build 8,737 elementary and secondary school buildings of the basic one-classroom type, pave 10,000 kilometers of national roads, pay for the increase of the basic pay of 1.4 million low-paid government workers, and even wipe out tuberculosis,” he lamented.
Sectors that enjoy tax breaks---as lower rates, rebates or income tax holidays-- from the government under 100 tax laws are mining, power, housing and manufacturing, among others.
“Why not pay income tax the way your employees are paying income taxes,” he told company representatives.
He added that in return, the government should allow these sectors to recover all their investment or expenses. “100 laws will be trimmed to more strategic laws that would target specific sectors that really need incentives.”
If passed into law, the bill would consolidate all investment promoting agencies (IPAs) into one centralized agency; thus the Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA) will be merged to form the Philippine Investment Promoting Agency (PIPA).
“At present there are about 147 laws which created a myriad of incentive-providing authorities. [A rationalization] would then prevent locators from cherry-picking incentives by registering with different IPAs to avail themselves of the best possible incentives package,” Recto explained.
Under this proposal, Recto said incentives are given to registered domestic enterprises located in any of the 30 poorest provinces; bring in investments of P500 million and above; or generate at least 200 jobs.
They also get reduced income tax rate of 15%; net operating losses carry-over (NOLCO) during the first 5 years, and accelerated depreciation, Recto said.
Registered export enterprises will enjoy reduced income tax rate of 15%, with option to choose between preferential rate of 15% and 5% on gross income earned in lieu of all taxes except VAT, duty-free importation on capital equipment, extended NOLCO and accelerated depreciation, among others.
“The savings to be generated from this measure shall be earmarked for infrastructure (50%) and for education (50%). Better physical infrastructure and a well-educated labor force will undoubtedly be more effective (than tax incentives in attracting capital into the country. Investing in infrastructure and education are keys to sustainable growth and are the best factors in luring investments,” said Recto.
“This measure is our answer to the challenge of this administration to raise additional revenues for better government services without imposing new taxes,” he concluded.
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