Gov’t losses from tax breaks: P144B or 1.5% of GDP

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The Finance department pushes for measures that will streamline tax incentives in the country

FOREGONE REVENUES. The Finance department pushes for the rationalization of tax incentives given over P140B losses from tax breaks. Photo from AFP

MANILA, Philippines – Companies are always on the lookout for tax breaks, considered foregone revenues for government. In 2011, these tax breaks reached P144 billion.

That amount was equivalent to 1.5% of the country’s gross domestic product, according to the initial Tax Expenditures Report (TER) published by the Department of Finance (DOF). It was also equivalent to 9.3% of government expenditures and 10.6% of revenues.

Perks such as tax holidays, reduced income tax rates and duty exemptions help lower companies’ expenses, and promote investments. But these cost the government billions of pesos in revenues, considered as tax expenditures.

DOF said the amount in the TER was “conservative” since the report covered only 29% of companies registered with investment promotion agencies (IPAs).

“With the current tax incentives system that has been largely unaccounted and uncoordinated, the government loses billions of pesos in revenues every year which could have helped improve our fiscal position,” Finance Secretary Cesar Purisima said.

Tax expenditures incurred due to income tax holidays and the reduced rate of tax on gross income totaled P61.331 billion in 2011.

Import-related tax expenditures, including duty exemptions for importation of raw materials by companies registered with IPAs as well as locators in freeport and economic zones, amounted to P82.97 billion.

Tax bills

Purisima urged the passage of bills that seek to rationalize tax incentives in the country and account where these incentives are going.

There are two measures. The first is the Tax Incentives Management and Transparency Act, which would give the government the necessary tools to account for tax incentives and their impact on socioeconomic goals.

The other one is the Fiscal Incentives Rationalization Reform Bill, which would organize and centralize the grant of incentives. (READ: Congress eyes tax incentives, BOC reform)

“Tax incentives distort the tax structure of the Philippine economy. Through these fiscal incentives reform measures, in the long term the government will enhance the country’s fiscal capacity to continue to build on its macroeconomic fundamentals, level the playing field and improve competitiveness and investment opportunities,” Purisima said.

“Accounting for tax incentives needs to be transparent, and these tax incentives need to be granted properly,” he added.

The finance chief said DOF’s efforts to come up with a TER puts the country at par with all of member-countries of the Organization for Economic Cooperation and Development or OECD, and some emerging economies in Asia that give high regard to transparent tax policies.

These countries have been producing comprehensive TERs annually, allowing the same level of scrutiny given their budget expenditures. –

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