DOF: ₱300 billion lost due to tax holidays, incentives

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Highlights

  • Forgone revenues amount to 2 percent of GDP
  • Gov't gives P104.40 billion in tax incentives, P159.82 billion in VAT exemptions
  • DOF wants to scale down corporate income tax; fix tax collection efficiency
  • DOF wants 'performance-based, targeted, time-bound, transparent' incentives
  • Second package of tax reform aimed to be submitted to Congress by January

Metro Manila (CNN Philippines, January 12) — The government is missing out on over ₱300 billion a year thanks to tax holidays and other incentives, the Department of Finance said Thursday.

"We are giving almost 0.8 percent of GDP so far on tax incentives from these income tax holidays and custom duty exemptions," Finance Undersecretary Karl Kendrick Chua said.

"Together with the VAT, it is ₱301 billion, or 2 percent of GDP," he added.

The Tax Incentives Management and Transparency Act allows the government to track incentives, revealing the following breakdown: ₱53.77 billion in foregone revenues due to income tax holidays; ₱32.48 billion to special rates; and ₱18.4 billion to custom duty exemptions. The amount totals to ₱104.40 billion in tax incentives given.

Exemptions from value-added tax (VAT) on imports cost ₱159.82 billion. Local VAT exemptions totaled ₱36.96 billion, although a part would have to be refunded, said DOF.

The ₱301.22 billion total excludes exemptions from the payment of local business taxes and the estimates on tax leakages.

Chua said the "flawed and outdated system" providing tax incentives is behind the Philippines' low efficiency in collecting corporate income tax (CIT).

Unless a corporation is receiving fiscal incentives, they are required to pay a regular CIT rate of 30 percent by law. However, the Philippines only has a collection efficiency rate of 12.3 percent.

In contrast, other Southeast Asian nations have lower CIT rates but higher efficiency rates. Chua cited Thailand, which has a CIT rate of 20 percent but boasts 30.5 percent collection efficiency, representing 6.1 percent of its GDP. Vietnam has a CIT rate of 25 percent, but a 29.2 percent efficiency—7.3 percent of GDP, he added.

DOF is trying to tap into this model in the second package of the tax reform proposal, which it aims to submit to the House of Representatives this month.

The proposal lowers the CIT rate to 25 percent, while rationalizing incentives to make them performance-based, targeted, time-bound, and transparent.