THE proposal to give Fiscal Incentives Review Board (FIRB) the power to grant and review tax incentives will harmonize the incentives regime and make it more “clear and transparent” for investors, the Department of Finance (DoF) said.
In a statement Monday, Finance Undersecretary Karl Kendrick Chua said the current incentive scheme with various approving bodies, packages and processes has created “confusion” for potential investors and “reduced accountability” in granting incentives.
“To promote fairness in the tax system, CITIRA not only seeks to harmonize the package of tax incentives, but to also put more order, clarity, and accountability in the process of granting incentives through the FIRB,” Mr. Chua was quote as saying.
Under the proposed Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, FIRB’s coverage will be expanded to include approval of tax incentives for private businesses in addition to its current mandate to grant tax subsidies to GOCCs.
FIRB, an interagency committee chaired by the DoF, will also act as an oversight body for the 13 investment promotions agencies (IPAs) to monitor the businesses receiving tax perks and validate whether they deliver jobs and investments as committed.
Currently, the Philippine Economic Zone Authority (PEZA), an arm of the Department of Trade and Industry (DTI), grants incentives to businesses located inside its special economic zones, along with the 13 IPAs.
“The system of having different packages of incentives and processes, as well as autonomous approval points, has created confusion among potential investors and reduced accountability in the grant of tax incentives,” Mr. Chua added.
He said the FIRB, under the proposal, will also ensure the tax incentives that can be availed of will also be available to micro, small and medium enterprises (MSMEs), who are mostly unaware of these perks.
According to the DoF, around 3,150 corporations enjoy fiscal perks, paying corporate income tax rates at a discounted rate of 6-13%. This compares to nearly one million MSMEs paying the current rate of 30%.
Mr. Chua cited as a model Malaysia’s National Committee on Investment, which approves all incentives granted by its 33 IPAs.
“Promoting good governance in granting incentives through an oversight body is not a new idea. Other countries have been doing that for decades now. The Philippines actually tried creating an oversight body two decades ago,” Mr. Chua said.
The CITIRA bill aims to gradually lower corporate income tax to 20% from the current 30% and rationalize tax incentives.
The measure is pending at the Senate while the House of Representatives counterpart bill has passed.
The Department of Finance is still hoping that the remaining tax measures of the Comprehensive Tax Reform Package are passed this year. — Beatrice M. Laforga