Over P300 billion in potential annual revenues are being lost due to income tax holidays and other incentives with no time limits, the Finance department claimed on Thursday.
In a statement, Finance Undersecretary Karl Kendrick Chua said that based on 2015 data, income tax holidays and special rates enjoyed mostly by large businesses accounted for P86.25 billion of the revenue losses, with another P18.4 billion coming from customs duty exemptions.
The bulk, or P159.82 billion, was due to exemptions from paying the value-added tax (VAT) on imports and another P36.96 billion from local VAT, Chua added, although part of this tax will eventually have to be refunded because these are imposed on exporters.
The total P301.22 billion in losses do not yet include exemptions from the payment of local business taxes and tax leakage estimates.
In terms of income tax perks, the government was said to have given away P61.33 billion to companies in 2011, which went up to P88.17 billion in 2014.
Customs duty exemptions, meanwhile, went down from P82.97 billion in 2011 to P38.04 billion in 2014 owing to various free trade agreements signed by the Philippines with other countries.
“So on average, we gave away up to 1.5 percent of our GDP (gross domestic product) in income tax and custom duties exemptions,” Chua claimed.
The enactment of the Tax Incentives Management and Transparency Act in 2016 allowed the Finance department to track incentives systematically, he said.
In 2015, income tax holidays accounted for P53.77 billion in foregone revenues; special rates, P32.48 billion; and import duty incentives, P18.14 billion for a total of P104.40 billion given away by the government, which would have accounted for almost 5 percent of national government revenues and 0.78 percent of GDP.
Data collection for VAT and local business taxes is not mandated under the law.
“So in general, we are giving almost 0.8 percent of GDP so far on tax incentives from these income tax holidays and custom duty exemptions. Together with the VAT, it is P301 billion, or 2 percent of GDP. These are only the investment incentives,” Chua said.
Following the enactment of the Tax Reform for Acceleration and Inclusion Act, which cut personal income tax rates but raised additional revenues for infrastructure and social services, the Finance department is now preparing to introduce to Congress Package Two of the Comprehensive Tax Reform Program, which will focus on reducing corporate income tax rates while rationalizing fiscal incentives.
The DoF is aiming to submit the “revenue-neutral” proposal to the House of Representatives later this month.
MAYVELIN U. CARABALLO