DOF to revoke a number of tax incentives

Over a thousand revenue regulations giving tax incentives to various industries are likely to be revoked for overlaps and even obsolescence, the Department of Finance (DOF) said yesterday.

The findings came from the joint audit of the DOF and the Bureau of Internal Revenue (BIR) that sought to evaluate thousands of revenue regulations on tax incentives.

Finance Undersecretary Gracia P. Tan said that the regulations gave tax incentives to various industries but some of them either overlapped or contradicted subsequent regulations.

"What we wanted to do was to rationalize all the incentives," Tan said. "There has always been a need to put these things in a matrix and analyze their impact, relevance and multiplier effect, if any."

According to Tan, the DOF and the BIR are drafting the official report that would include recommendations on how to rationalize the incentives.

"But initially, I think over a thousand of these regulations would have to be revoked," Tan said.

The DOF had initiated the review to tighten all its tax exemptions and incentives in an attempt to plug loopholes.

The DOF earlier estimated that foregone revenues from waived taxes and duties amounted to P187 billion in 2001 alone.

On top of the review list was the preferential tax rates being enjoyed by export-oriented firms located in special economic zones, a policy that has been repeatedly abused due to the ambiguity in the treatment of gross income of these companies.

A proposal being drafted by the DOF would effectively require ecozone firms to pay the usual 32 percent corporate income tax once the 10-year period has lapsed.

The tax discount is the primary incentive offered by the Philippine Export Processing Authority (PEZA) to lure in investors and spur export-oriented businesses within the ecozones.

Under the incentive package, ecozone locators pay a five percent tax on gross income instead of 33 percent on net income that is normally imposed on all businesses operating in the Philippines.