Finance Undersecretary Gil Beltran on Monday described as “wrong” and “flawed” the claim of Philippine Economic Zone Authority that it contributed P10 trillion to the economy from 2015 to 2017.
“No one has called Peza an evil, three-headed dragon,” Beltran said in dismissing an earlier Peza statement that justified the massive amount of tax incentives it granted to locators.
“But based on their statement, Peza seems to have a weak grasp of basic economics and accounting,” Beltran said.
Beltran, who is also the chief economist of the Department of Finance, said Peza’s assertion that it contributed P10 trillion to the economy in a three-year period was incorrect because “their” method of accounting for its contribution was “flawed”.
“For one, Peza double-counted by adding up the total of exports, investment, capital equipment, and raw materials, which are from the expenditure side; and wages and taxes, which are from the income side. This is a no-no in basic accounting,” Beltran said.
“Like GDP [gross domestic product], benefits can be measured from either the expenditure or income side, but not both,” Beltran said.
He also said the purchases of raw materials were already part of total exports which meant that Peza also double-counted raw materials.
“Peza’s calculations are wrong, and the result is that they’ve bloated their contributions,” Beltran said.
He said that while the DoF agreed that exports contributed significantly to the economy, Peza should “give the whole truth in making its claims.”
Peza originally said that from 2015 to 2017, their exports accounted for more than half of the country’s total commodity exports.
“Peza says that 70 percent of their supposed contribution, or about P7 trillion, to the economy is because of exports,” Beltran said.
“What they are hiding is that Peza exports contain about 80 percent imported inputs which don’t add value to the local economy,” he said.
Beltran said that a proper accounting of benefits should subtract imports from total exports to arrive at net exports. In some sectors, like electronics assembly, almost all the parts are imported and are assembled in ecozones, creating very little domestic value-added, he said.
“Assuming their figures are correct in the first place, using the appropriate method to account for exports and remove double-counting wipes out more than half of the P10 trillion they allege to have given back to the economy,” he said.
Package 2 of the Comprehensive Tax Reform Program seeks to change the status quo of incentive granting, where there is little accountability in the grant of preferential tax rates that Peza grants forever, regardless of performance, according to the Finance Department.
Based on the data gathered under the Tax Incentives Management and Transparency Act, 585 PEZA locators received tax incentives for more than 15 years.
“Our analysis has also shown that about half of all companies receiving incentives do in fact contribute to the economy,” Beltran said.
“As we’ve mentioned, we are not anti-incentives,” he said.
Beltran said that aside from gradually lowering the corporate income tax rate, Package 2 aims to institute a single menu of generous incentives that are performance-based, time-bound, targeted and transparent.
“Transparency has always been an issue here,” Beltran said. “PEZA has yet to account for all the incentives it has granted to locators for over 40 years, which would help make the case that it has performed its mandate.”