Foregone revenues from tax perks reach P1.12 T in 3 years

MANILA, Philippines — The government lost the opportunity to generate P1.12 trillion in revenue from 2015 to 2017 due to the grant of tax incentives and exemptions to select firms, according to the Department of Finance.

According to Finance Undersecretary Karl Kendrick Chua, the government gave away tax perks amounting to P301.2 billion in 2015, P380.7 billion in 2016, and P441.1 billion in 2017, for a total of P1.12 trillion over the three-year period.

Chua said these tax perks were given to 3,150 companies and include income tax incentives, tax incentives on customs duties and tax incentives on import value added tax (VAT).

He said P879.1 billion of the incentives were given by the Philippine Economic Zone Authority (PEZA), equivalent o 78 percent of the three-year total.

“Every peso given away in tax incentives is a peso that could have gone to constructing roads, classrooms or health centers, or to hiring more teachers, doctors and nurses,” Chua said adding that “the government could have implemented so many programs and projects with P1.12 trillion that was given away to companies.”

Chua acknowledged that while not all these tax perks were wasted, there is still a need to rationalize the country’s tax incentive system to ensure multiplier effect in the economy.

“We are not saying that all these incentives are not worth it, and we acknowledge that there have been benefits in the form of job creation and investments in the domestic economy,” Chua said.

“However, we cannot keep giving away tax incentives indiscriminately and indefinitely, especially if the amount keeps getting bigger and bigger every year. We need to modernize and improve the incentive system, and this is why President Duterte in his 4th State of the Nation Address (SONA), called on the Congress to immediately pass Package 2 (of the Comprehensive Tax Reform Program or CTRP),” he said.

Package 2 of the CTRP aims to reduce corporate income taxes, while rationalizing the grant of fiscal incentive to companies. It seeks to establish a single menu of incentives that are performance-based, time-bound, targeted, and transparent.

Under the proposal, companies must fulfill their commitments, such as creation of jobs or directing investment outside highly urban areas, in exchange for special tax treatment over a specified number of years.

“The proposal under Package 2 does not eliminate incentives,” Chua emphasized. “But if we are going to be giving away billions of pesos in tax incentives, we need to make sure that the companies who get to enjoy these incentives truly help us achieve inclusive development, as envisioned by President Duterte.”

Following the President’s endorsement of the remaining CTRP packages, Dominguez expressed hope that Congress would pass these measures within the year.