The Philippines needs to update its tax incentives system to remain competitive in an integrated Association of Southeast Asian Nations, the Department of Finance (DOF) said on Wednesday.
According to the Finance agency, tax incentives have long been used by governments worldwide as a fiscal policy lever to spur economic growth and investment, but the expenditures that result from the use of incentives in the Philippines are “still kept in the dark.”
Finance Secretary Cesar Purisima said this lack of information is troubling, because it limits the ability of the government to assess whether it is granting the right amount of incentives to the right places to achieve its economic goals.
“We are currently living in an age where data and information are premium commodities for effective decision-making, and yet our current system forces us to blindly grant tax incentives to investors without understanding their full economic impact,” he said.
The DOF said a better monitoring system will provide the government more information for analysis, which will in turn translate into a more efficient tax incentives system.
The DOF said it is pushing for the swift passage of the Tax Incentives Management and Transparency Act (TIMTA) or House Bill 2492.
The proposed TIMTA is expected to create a Tax Expenditure Account (TEA) in the national budget from which tax incentives will be drawn by all Investment Promotion Agencies (IPAs) and other concerned government agencies, and requires agencies to submit their projected amount of tax expenditures for the succeeding three years to the Department of Budget and Management (DBM).
In line with the government’s priorities on fiscal prudence and transparency, tax expenditures of the government will be reported annually in the national budget to facilitate analysis of the cost and economic impact of incentives granted, the DOF said.
Difference of opinion
The DOF stressed that the passage of TIMTA should be consistent with the reform trajectory of the government, as it bolsters transparency and accountability in how resources of the government are foregone in favor of the private sector in the interest of economic development.
The Department of Trade and Industry (DTI), on the contrary, issued a position paper asking lawmakers to reconsider HB 2942, arguing that the ‘unusual’ arrangement of the proposed law would harm the Philippines’ competitiveness by placing a ceiling on possible incentives.
The Joint Foreign Chambers of the Philippines concurred with DTI’s position in a letter sent last month to House Ways and Means Committee Chairman Rep. Miro Quimbo.
Nevertheless the DOF is urging members of Congress “to bring Philippine fiscal policy to the 21st century,” by leveraging data on tax incentives to inform a better policy development process and incentives system.
“I urge our colleagues in Congress to pass this bill swiftly; every day we wait is another day lost in our race for competitiveness. It is already 2015, high time that we become smart enough using data to inform our policy decisions,” Purisima said.