The government lost P178.56 billion in potential revenues in 2016 as a result of tax incentives given out to only 3,102 firms registered with various investment promotion agencies (IPAs), the Department of Finance (DOF) revealed in a statement on Thursday.
Finance Undersecretary Karl Kendrick Chua said that based on data from the Bureau of Internal Revenue (BIR) and of the Bureau of Customs (BOC), the government had foregone PHP74.53 billion in revenues from income tax holidays (ITHs), PHP46.66 billion from special income tax rates and PHP57.38 billion in customs duties.
These foregone revenues, as a result of tax incentives given out to select enterprises, are collectively termed as “investment tax expenditures.”
Under the Budget of Expenditures and Sources of Financing (BESF) document published by the Department of Budget and Management (DBM), these only include ITHs, special income tax rates and incentives on customs duties.
Chua said at a hearing of the House committee on ways and means that the data collated by the DOF’s Domestic Finance Group (DFG) did not yet include foregone revenues from the value-added tax (VAT) exemptions on imports and local VAT that enterprises registered with IPAs also get to enjoy. It also did not yet include the foregone local taxes and leakages that may arise as a result of abuse of transfer pricing.
Foregone revenues from investment incentives, excluding VAT and local tax privileges, grew 71.03 percent in 2016 from the previous year’s figure of PHP104.40 billion and were 52.52 percent higher from 2015 projections, the DOF-DFG report said.
The report said these revenue losses are expected to increase to PHP196.02 billion or by 9.77 percent in 2017.
For 2015, the DOF was already able to include estimates of revenue losses from VAT exemptions, which reached about PHP196.83 billion for that year on a gross basis.
Adding this figure to the investment tax expenditures of PHP104.40 billion from ITHs, special tax rates and custom duty incentives, this brings the total estimated foregone revenues of the government from investment incentives to PHP301 billion in 2015 alone, Chua said.
He told lawmakers that 2015 was the earliest year when the Tax Incentives Management and Transparency Act (TIMTA) made possible the monitoring and review of the economic impact of incentives given to businesses.
Chua said the Philippines has 14 IPAs that are authorized to grant incentives to a select group of businesses. Moreover, some 315 special laws exist that grant other forms of incentives beyond what the IPAs give.
These laws that are outside the national tax code comprise 123 statutes that give out investment incentives and 192 others that provide non-investment incentives to registered enterprises.
In contrast, some 90,000 active small and medium enterprises (MSMEs) pay the regular corporate income tax (CIT) rate of 30 percent, which remain the highest among the Association of Southeast Asian Nations (ASEAN) economies, Chua said.