645 firms still getting tax perks after 15 years

FILE: DOF Undersecretary Karl Kendrick Chua (Photo: Dr. Karl Kendrick Chua /Facebook)

MANILA — The Department of Finance (DOF) has identified a total of 645 registered enterprises that continue to receive tax incentives even after 15 years in the business, proving that investment perks usually given to big or multinational firms — many of them are “inherently profitable” — have become redundant and unnecessary.

Finance Undersecretary Karl Kendrick Chua said in a statement on Monday that data reported by investment promotion agencies (IPAs) – as mandated under the Tax Incentives Management and Transparency Act (TIMTA) – also show that for 2015 alone, the government gave away PHP86 billion-worth of income tax incentives to firms that paid out a total of PHP83 billion combined in dividends.

“So our question is, why are we supporting certain firms if they are inherently profitable and they pay even more dividends than the incentives they receive? And these are dividends, which is just a fraction of profit because part of profit is the one you retain as earnings,” said Chua during a recent hearing on the proposed corporate tax reform law conducted by the House ways and means committee.

The committee, chaired by Rep. Dakila Carlo Cua, has so far conducted five hearings on House Bill 7458, which aims to lower corporate income tax (CIT) while reorienting the current complicated investment incentives system that has led to such redundant, unnecessary perks given out to select enterprises registered with the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA) and 12 other IPAs.

Cua, along with Representatives Raneo Abu and Aurelio Gonzales, jointly authored HB 7458 – which Speaker Gloria Macapagal Arroyo said would be among the priority bills of the House under her leadership.

The proposed reforms in the CIT system comprise Package 2 of President Duterte’s comprehensive tax reform program (CTRP).

Chua said during the hearing that when the DOF did a cost-benefit analysis of the registered firms in IPAs receiving tax incentives, it came out with three main factors to determine if the perks they are getting are necessary or not, or if these are redundant or non-redundant.

These factors are: 1) the length of the availment of incentives, to find out whether a firm has been receiving incentives for more than 15 years; 2) profitability, to verify whether the firm is inherently profitable or not, and whether it is already earning three times the median of the industry it belongs to; and 3) the motivation to invest, to find out why they chose to relocate here.

“According to the data from the TIMTA, there are 645 firms receiving incentives for at least 15 years,” Chua said.

Chua said the DOF study showed that 43 percent of the firms registered with IPAs are worthy of being granted incentives, while the remaining 57 percent are receiving incentives that are already unnecessary or redundant.