The Finance Department asked the Philippine Economic Zone Authority to explain to Filipino taxpayers why it insists on subsidizing at their expense the multibillion-peso dividends and profits of large corporations that do not actually need such incentives.
Finance Assistant Secretary Antonio Joselito Lambino II said Peza should justify its stance rather than make an 11th-hour appeal to President Rodrigo Duterte to reconsider his own directive supporting corporate income tax and fiscal incentives reform that would benefit more than 99 percent of businesses.
Lambino said the Duterte administration’s proposal aimed to rationalize tax incentives now enjoyed by just a select group of mostly big businesses located in large cities and level the playing field for some 90,000 small and medium enterprises across the country that currently pay the CIT rate of 30 percent, which was the region’s highest.
Lambino said the second package of the Comprehensive Tax Reform Program was not eliminating tax incentives altogether, as the proposed bill would actually continue to provide incentives to businesses, including SMEs, that would lead to increased investment inflows and create more jobs.
“Peza [director-general Charito Plaza] is free to talk to the president. But the president already approved this comprehensive tax reform program as early as January 2018 in a Cabinet meeting and reiterated this in his State-of-the-Nation Address. We should not stand in the way of a presidential directive,” Lambino said.
Lambino was responding to reports quoting Plaza as saying she would talk to the president about her misgivings over the CIT reform bill now pending in Congress.
Finance Undersecretary Karl Chua said contrary to Plaza’s claim that neither Peza nor its locators were consulted in the crafting of Package 2, several dialogues were in fact held with Peza and other stakeholders.
“In fact, we took into consideration Peza’s comments, which was why several changes were made to the original Package 2 proposal,” Chua said.
“During our consultations with director-general Plaza, she even agreed to the principles of Package 2―that it be performance-based, targeted, time bound and transparent,” Chua said.
Chua said he was puzzled why Plaza had apparently changed her mind and was now opposing the tax reform bill that aimed to benefit struggling SMEs rather than protect a few firms with oversized profit margins.
Following such consultations with PEZA officials and industry players, Chua said that several adjustments were made to Package 2 to take into account their concerns.
These adjustments include retaining Peza’s power to extend incentives to most projects, keeping the one-stop-shop function and retaining the provision “in lieu of local business taxes” on the grant of special rates for locators.
The House of Representatives approved on Sept. 10 its version of CTRP Package 2 dubbed the Tax Reform for Attracting Better and Higher-quality Opportunities Act or Trabaho bill. The Senate, meanwhile, is still deliberating on the CIT reform bill introduced by Senate President Vicente Sotto III.
Lambino said the status quo of dangling tax incentives as a band-aid solution to make up for the structural defects of the business environment, which the government had been doing for over 50 years, had not encouraged export diversification and innovation.
“Instead, the outcomes are corporate geese fattened from incentives granted forever, declining export competitiveness, and foreign direct investment inflows that remain lackluster if compared to our neighboring countries,” Lambino said.
He said the Trabaho bill aimed to reverse this unfair setup because it “favors investors that support our development objectives, which are: to create more and better jobs, promote research and development, encourage innovation, stimulate domestic industries, promote countryside development, and diversify our product base to higher-value exports.”
The Finance Department said that in 2015, the government gave away P86.3 billion worth of income tax incentives to firms that paid out a total of P141.8 billion combined in dividends to their respective shareholders.