A total of 645 profitable companies are still receiving tax incentives even after 15 years in the business, depriving the government of billions of pesos in revenues, an official of the Finance Department said Monday.
Finance Undersecretary Karl Kendrick Chua said the data proved that investment perks given usually to big or multinational companies had become redundant and unnecessary.
Chua said data reported by investment promotion agencies as mandated under the Tax Incentives Management and Transparency Act showed the government in 2015 gave away P86 billion worth of income tax incentives to firms that paid out a total of P83 billion in dividends to shareholders.
“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 the profit is the one you retain as earnings,” Chua said 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, so far conducted five hearings on House Bill 7458, which aims to lower corporate income tax while reorienting the current complicated investment incentives system that has led to such redundant, unnecessary perks to select enterprises registered with the Board of Investments, Philippine Economic Zone Authority and 12 other IPAs.
Cua along with Rep. Raneo Abu and Rep. 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.
Chua said during the hearing that when the Finance Department 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 were getting were necessary or not, or if these were redundant or non-redundant.
These factors were the length of the availment of incentives to find out whether a firm has been receiving incentives for more than 15 years; 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 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.
“Also in the data we submitted, we gave away in 2015, P86 billion in income tax incentives. But the firms receiving these incentives combined take dividends of P83 billion more than the incentives they get,” he said.
Chua said the DOF study showed that 43 percent of the firms registered with IPAs were worthy of being granted incentives, while the remaining 57 percent were receiving incentives that were already unnecessary or redundant.
Chua said earlier the government lost P178.56 billion in potential revenues in 2016 alone as a result of tax incentives given out to only 3,102 firms registered with various IPAs.