Making Tax Incentives Transparent
Committee Report No. 104
Tax Incentives Management and Transparency Act (TIMTA)
You know that a bill is attracting interest when you begin your sponsorship speech not with the details of the measure but with a disclaimer.
This bill will not appropriate tax incentives availed; it merely requires that they be accounted for.
It does not tamper with the fiscal incentives presently enjoyed by companies; it only requires that their use be made transparent.
It does not rescind, nor recall any investment perk; it just obliges companies and the government to record and report it.
Why? Because in taxation, it doesn’t mean that when taxes are forgiven, you can already forget about them.
So there – just to make it clear. Because the business section of the papers today reports about the fears of some foreign businessmen that this bill will usher in a new regime which requires that tax expenditures be appropriated by Congress and shall form part of the national budget.
True, there was a proposal to that effect, from some groups. But that has been expunged from this bill.
And we have to credit the DBM for pointing out how hard and impractical it would be to grant tax incentives, via appropriations.
The viability of an idea is tested on simulations of its implementation. This saying is true in legislation, as in cooking : Just because a rose smells better than cabbage should not lead us to conclude that it makes a better soup.
Mr. President :
Because domestic resources are not enough, we attract foreign investments to grow the economy and create jobs.
So they will come, we offer a raft of fiscal incentives – income tax holidays, tax- and duty-free importation of raw materials, capital equipment, spare parts and consumer goods directly or indirectly used in the registered activity.
And in economic and freeport zones, exemption from local and national taxes is granted in exchange for paying the equivalent of 5 percent of GIE (Gross Income Earned).
So when actors De Niro and Di Caprio would play Black Jack in a casino not far from here, the table and cards they will be using while placing their bets are probably tax-exempt, including the kitchen equipment from which the canapés they will be munching were made.
The “if you build it, they will come” mantra happens only in Field of Dreams. But when it comes to the City of Dreams, investment perks were probably given first to the owners before they came and built.
The red carpet we roll out to foreign capital is a tapestry of income tax holidays, tax breaks, exemptions.
We offer these perks to compensate for our handicaps.
When we have one of the highest power rates in Asia, when our ports are congested, our roads clogged, our airports crammed, and even data travel slow in the information highway, when business is choked with rules, then we try to offset these with tax holidays and the like.
In short, we indemnify them with incentives.
We also offer the same to local businessmen. Why? Because while they’re Filipinos, patriotism is soluble in taxes.
In the FDI race in the region, we lag behind our neighbors.
In 2013, the US$3.9 billion investments we got paled in comparison with Thailand’s $13 billion, Malaysia’s $12.3 billion, and Indonesia’s $18.5 billion.
Ours was 1/20th of Singapore’s $64 billion FDI haul. Even Vietnam trounced us. The $8.9 billion it got was two and a half times bigger than ours.
So it came as no surprise that on a per capita basis, the FDI per Pinoy was 13 dollars and 3 cents in 2011, Vietnam was 84 dollars and 6 cents and Singapore, a staggering $12,347 FDI received per citizen.
Net FDI of the Philippines accounts for 1.12 percent of its GDP, which is the lowest in the region.
Mr. President :
I have to stress the above to underscore the value of investments to our economy and to correct the misinformation that this bill is about making the enjoyment of tax incentives complicated and circuitous.
Though I believe that some of our fiscal incentives must be rationalized, like why is it becoming de rigueur for shoebox condominiums to be showered with fiscal incentives, or why businesses guaranteed to rake in huge profits are not taxed, that exercise is not the intent of this bill.
Its aim is to create a system which will monitor and track the tax incentives granted by investment promotion agencies like BOI, PEZA, TIEZA and freeports like those in Subic Bay, Clark, Cagayan, Zamboanga City, John Hay, Morong, Poro Point.
Under the bill, the DOF, in coordination with the BIR and the BOC, shall create a Tax Incentives Tracking Program, a single database that will capture all data on tax incentives.
In short, it’s like attaching a GPS on every tax incentive given.
Registered business entities and qualified private individuals shall submit to the investment promotion agency or government agency the amount of tax incentives availed for the year and other data which may be required, like taxes and licenses paid.
A consolidated annual Tax Incentive Information (TII) shall then be submitted to the President and to the Chairmen of the Committees on Appropriations and on Finance of both houses of Congress as part of the annual Budget of Expenditures and Sources of Financing or BESF.
Only the aggregate data, however, will be shown in the TII portion of BESF. This will include estimated claims of the preceding year, programmed for the present year, and forecast for next year.
It will not bean-count the tax incentives per company.
But this isn’t only about encoding data in a spreadsheet. The DoF will also evaluate the impact of the tax incentives on the Philippine economy.
I hope that when it does, it will not see it from the limited prism of revenue loss, but from a wider vista of jobs generated and other economic opportunities created, to cite a few.
The TII is not designed to be a ledger of taxes waived alone. There are other metrics to be considered, where the standard formula doesn’t apply, like the social good created by a company which had set shop in a rural area where others fear to tread.
As I said, it should be an all points-of-view assessment, not just dominated by one school of thought. One agency may see a glass three-fourths drained of taxes, while one would see it as one-fourth full.
One agency will say that the amount of taxes foregone is big. To which another agency can retort : “Which would you prefer : Getting 10 percent of something, or 100 percent of nothing?”
To every complaint of how hard tax collection is, there is this rebuttal of how job creation and investment attraction are harder.
The following gives us the data portrait of this quandary.
In 2011, 4,581 registered firms plunked in P92 billion in investments, exported $3.45 billion worth of goods, and employed 162,498.
The flipside is that in the same year, 1,318, or under one-third of the total, used P61.3 billion worth of tax expenditures, of which P45.6 billion was in income tax holiday claims and P15.7 billion was due to special and preferential rates.
It is premature to make conclusions out of such a sparse data. As I said, it is a tough balancing act. But before we weigh in with our opinion, we need a database, and this bill creates it.
After all, we may be entitled to our own opinions, but not to our own facts.
