The Department of Finance over the weekend vowed to continue fighting for fiscal incentives reform despite the strong opposition of Philippine Economic Zone Authority director-general Charito Plaza to the Corporate Income Tax and Incentives Reform Act.
CITIRA, approved on Sept. 13 by the House of Representatives, aims to lower the corporate income tax rate from 30 to 20 percent and rationalize fiscal incentives.
“There is no way we will stop fighting for fiscal incentives reform,” DOF Undersecretary and chief economist Gil Beltran said in response to what he said was a spate of strongly-worded statements made by Plaza against CITIRA.
“Director-General Plaza said they are ready for war, but we would at least expect them to be armed with correct information,” Beltran said, adding the statements made by Peza had been “largely erroneous and misleading.”
“We are not against incentives, and we are not trying to remove Peza,” Beltran said. “We are simply trying to fix a long-broken system. When the government grants incentives, we want to do so for the right reasons—such as for job creation, investment in less-developed areas, and investment in infrastructure,” he said.
In a recent briefing, Plaza reiterated her desire for Peza to be exempted from the incentive scheme proposed under Package 2 of the comprehensive tax reform program, which the House approved as House Bill No. 4157.
In response to claims that CITIRA might drive away potential investments, Beltran said the government must “look at the bigger picture.”
“Foreign direct investments have been on an upward trend since 2011. There is no doubt about that. Looking at the data, we will even find that these FDIs are increasingly non-reliant on incentives. While more and more investments are coming into the country, the level of investment pledges through Peza, which are pledges made with the expectation that incentives will be granted, have been going down,” Beltran said.
“Since our fundamentals are in place, incentives are becoming less and less of a factor for investment. Even before CITIRA or TRABAHO (Tax Reform for Attracting Better and High Quality Opportunities) was proposed, Peza investment pledges have been going down,” he said.
Beltran said investors “lately do not base their pledges on incentives given forever.”
“In 2018, the largest amount of investment pledges came from firms registered with the Board of Investments, which does not grant incentives forever. Investment pledges with the BOI in 2018 amounted to $1.97 billion. Those with Peza only amounted to $1.3 billion,” he said.
The DOF earlier debunked Plaza’s claim that Peza generated over P10 trillion in contributions to the economy from 2015 to 2017.
The DoF said the method in calculating Peza’s total contributions that Plaza used added items from both expenditures and income, which resulted in double-counting.
Beltran said when comapred with the fact that Peza had given away the lion’s share of incentives over the past few years, its contributions to the economy were not as grand as portrayed.
“An estimated P5.5 trillion in tax incentives was given to Peza firms since 1995, while, in return, investment pledges with Peza over that period amounted to only P3.6 trillion. This means that Peza gave out more than it got back in promises of investments in the economy. And note that this amount constitutes promises only. Is this not a signal that we have to look more closely at our incentive system and account for the money we give out? That is what CITIRA seeks to do,” Beltran said.