Businesses enjoying tax perks soon outed
Some 3,102 corporations paid discounted corporate income tax of 6 or 13 percent granted by 14 investment promotion agencies on the strength of 336 special laws for corporations
The Department of Finance (DoF) bared plans on Thursday to make public the identities of companies enjoying preferential tax treatment as part of the broader goal of making the incentives business more transparent.
These are the companies, Finance Undersecretary Karl Kendrick Chua said, who are some of the more profitable enterprises on the planet whose shareholders are pleased no end by the annual dividends they dish out every year.
These are also the same companies whose civic duties do not include contributing to the nation’s coffers and are the complete opposite of the small and medium enterprises (SME) who pay the full 30 percent tax that everyone else is paying.
The plan, Chua said, requires amending the Tax Incentives Management and Transparency Act (TIMTA) to enable the government to make public the list of corporations that receive tax incentives and how much such perks are costing Filipino taxpayers each year in terms of foregone revenues.
He said the plan forms part of the effort to make a fairer, targeted, more accountable and transparent system of corporate taxation he calls a “chaos of priorities that demand harmony.”
By rejecting the current opaque system of incentives giving and amending the TIMTA, the Filipino taxpayer knows exactly which group of business feeds off the tax contributions of those who pay the entire 30 percent tax on corporate income.
Chua said when the government awards an incentive to one group, another group pays for it in the form of higher taxes and who should have the right to know who benefits from its hard-earned money.
When the government awards an incentive to one group, another group pays for it in the form of higher taxes and who should have the right to know who benefits from its hard-earned money.
In 2016, some 3,102 corporations paid discounted corporate income tax (CIT) of 6 or 13 percent granted by 14 investment promotion agencies (IPA) on the strength of 336 special laws for corporations.
In contrast, some 90,000 SME that employ 2.5 million Filipino workers pay the regular CIT rate of 30 percent, which is the highest in the region.
“This is what we mean by being transparent. We propose that the names of firms receiving incentives be made public, including the amount of their incentives and contributions to society,” Chua said at a recent hearing of the Senate ways and means committee on the bill seeking reforms in corporate taxation.
He argued the government must stop granting hundreds of billions of pesos a year to only a select group of already profitable companies via preferential tax rates and other perks, and who have been enjoying these incentives for decades.
Chua said the proposed reforms, which comprise Package 2 of the Duterte administration’s comprehensive tax reform program (CTRP), is “pro-investment and pro-incentive” because it aims to lower the CIT rate while broadening the tax base through more prudent grant of tax incentives to businesses and improved compliance.
“We recognize the value of incentives as a key component of a country’s policy toolkit. We assert, however, that incentives should not be given indiscriminately at the expense of building up our more powerful attractions: first, a skilled and hardworking talent pool that needs sufficient human capital investments; second, an ambitious infrastructure development program that requires fiscal commitment; and third, a sizable SME community that deserves to be treated fairly,” Chua said.
The House of Representatives has already approved its version of Package 2 — the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill last 10 September. The Senate version of the bill is still at the committee level.
Chua said the approved House bill, which calls for reducing the CIT rate from 30 to 20 percent over 10 years, “is hardly inflationary while creating millions of jobs over the medium term as firms expand with more money at their disposal.”
“Moreover, we will continue to support firms or activities that are priority with tax incentives that are performance-based, targeted, time-bound and transparent,” Chua said.
He compared preferentially treated business to a student who receives a scholarship, which is given not forever and not without conditions.
The student “must pass the course and get a good grade. If he doesn’t, then he loses the scholarship. This is what performance-based means. We propose that firms that enjoy incentives must be bound by a contract on job creation or export targets, for instance,” Chua said.
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