Government waives P20B in ITH last year

MANILA, Philippines - The government has waived P20 billion in income tax holiday (ITH) last year in exchange for P302 billion worth of Board of Investments (BOI) approved investments.

In an interview with reporters, BOI managing head Cristino L. Panlilio said that the ITH given last year was very small compared to the actual collection of the Bureau of Internal Revenue (BIR). The total ITH given last year was only two percent of the income tax collections of the BIR.

The reason for this, Panlilio explained is that only 20 percent of the registered firms availed themselves of the ITH.

Panlilio said it is good that there is investment because money is injected into the market but the government does not give up much income. He said the firms mostly enjoy the duty free importation of capital equipment.

A government study showed that for every P1 income tax holiday (ITH) given by the government, P12.88 worth of investment is generated. The study also showed that the amount of export generated by the ITH availors also far exceed the total amount of ITH that has been granted, equivalent approximately to P14.41 in export sales per P1 ITH.

BOI said they have data that will prove that giving ITH is an effective investment sweetener because the benefit outweighs the cost.

The BOI has made a cost benefit comparison of the ITH and the benefits generated for the period of 2004 to 2007. The benefits include the amount of investment generation, employment, foreign currency revenues and the tax revenues generated from these enterprises.

The BOI said this will determine whether or not the continued grant of such incentives produces worthwhile returns for the country.

Furthermore, more developed countries are giving ITH. Singapore, Malaysia and Thailand are giving ITH to its investors. Others like Indonesia and Vietnam are also giving ITH. In fact, Singapore is even matching the investment of some firms in order to ensure that the money and the jobs go to their country. In most cases, the ITH in our neighboring ASEAN countries are bigger than those given here.