THE Department of Finance (DoF) said profitable companies availed of tax incentives worth P86.3 billion in 2015 while smaller companies paid the full 30% corporate income tax, as the department built its case for rationalizing incentives as proposed in pending legislation.
The DoF said companies that received a total of P86.3-billion worth of tax incentives in 2015 also paid out dividends worth P141.8 billion to their shareholders, based on data from the Securities and Exchange Commission (SEC) and the various investment promotion agencies (IPAs).
“This means that while SMEs (small and medium enterprises), which employ about 65% of Filipino workers in the country, have to pay the steep CIT of 30%, the favored big corporations get sizeable tax breaks that enable them to award huge dividends to their stockholders,” Finance Undersecretary Karl Kendrick T. Chua said.
“Filipino taxpayers are, in effect, subsidizing the lion’s share of the profits earned by a select group of corporations that enjoy already redundant incentives under our convoluted CIT (corporate income tax) system,” he added.
“Such data showing that certain enterprises declared dividends that are way above the incentives they receive from the government prove that many of them are inherently profitable and no longer need such perks for their businesses to prosper here in the Philippines,” he said.
The DoF said in a statement that about 90,000 small and medium-scale enterprises (SMEs) and hundreds of thousands micro enterprises pay the 30% corporate tax rate, which is the highest in Southeast Asia.
It noted that SMEs in the services sector received P31 billion in income tax incentives but only paid out P47 billion in dividends to their shareholders during the same period.
The DoF said that about 645 registered enterprises continue to receive tax incentives after more than 15 years, “proving that investment perks given usually to big or multinational firms — many of them are inherently profitable — have become redundant and unnecessary.”
The DoF is backing the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill, which rationalizes the incentives regime. It was approved by the lower House on final reading on Sept. 10 but pending at committee-level in the Senate.
The bill seeks to cut the corporate income tax rate gradually to 20% by 2029 via a two-percentage-point reduction every other year starting 2021.
Fiscal incentives will be limited to industries identified in the Strategic Investments Priority Plan (SIPP) and will make them subject to performance benchmarks. Incentives will be harmonized into a single menu, including: a three-year income tax holiday, after which, a special net income tax rate of 17% will be charged starting 2021; deductions for labor, research and development, training, and infrastructure development expenses; and some customs duty exemptions for up to five years. Following this, companies will be taxed at the prevailing corporate tax rate.
Currently, income tax holidays can be as long as nine years, with locators enjoying a 5% tax on gross income earned in lieu of all other taxes in perpetuity.
The DoF said that only 43% of the firms registered with IPAs are “worthy” of receiving tax incentives.
In 2016, the government estimates P178.56 billion in forgone revenue from tax incentives given out to 3,102 firms registered with various IPAs, according to the DoF, a total which is expected to rise 9.77% to P196.02 billion in 2017. — Elijah Joseph C. Tubayan