Comprehensive Tax Reform Program 1
Comprehensive Tax Reform Program Packa kage ge 1: TRAIN AIN Package ge 2 Lowered ed personal nal Lowe wer r corpo pora rate te income me tax while e incom ome tax ax while e broadening dening the e broadening dening the he tax ax consum umpt ptio ion n tax base bas ase e by rat ationa ionalizing lizing fiscal incentives ntives 2
Administrative Order No. 13 s. 2018 Removing non-tariff barriers and streamlining administrative procedures on the importation of agricultural products ● Removal of non-tariff barriers and streamlining of administrative procedures ● Additional rice importation ● Importation of fishery products ● Expedite unloading of agricultural imports ● Other remedial measures to improve logistics, transport, distribution, and storage of agricultural products ● Creation of a surveillance team 3
Lower corporate income tax Scheduled reduction may be advanced when adequate savings are realized from the rationalization of fiscal incentives 4
Incentives must be 5
Some incentives may be needed to attract investments that support our growth objectives. Creat ate more and Promo mote resear arch ch Encourage rage innovat vation ion better jobs bs and develop lopment nt Divers versif ify produ duct ct spac ace Stim imulat late domes mestic ic indust stries ies (e.g., ., to higher value ue exports) rts) However, they must be perfo rform rmanc nce-ba based ed, targe gete ted, time-bound bound, and trans nspare parent nt. 6
We have a complex tax incentives system. We grant the most generous fiscal incentives since they are in lieu of all taxes and given forev ever. - 14 IPAs s - 136 investme stment t laws s 200 non-in inve vestme stment t laws - 946 ‘ecozones’ and free eepor orts ts Source: Individual country finance agencies and 7 investment promotion offices.
Tax incentives in billion pesos 2016 2016 Type of tax 2015 2015 121 Income tax 86 57 Customs duties 18 Estimated forgone 179 179 Subtotal otal 104 104 revenue due to tax TBD Import VAT (gross) 160 incentives TBD Local VAT (gross) 37 TBD Local business tax TBD TBD TBD Subtotal otal for incentive ntives 301 301 TBD Leakage 43 TBD TBD Total al 344 344 3,102 No. of recip ipie ients nts 2,844 Source: TIMTA, DOF estimates. 8
Congress Oversight of incentives Oversight of incentives Processes and approves the applications for incentives for IPAs process and approve the applications for business entities incentives except those reserved for the FIRB FIRB BOI Processes and approves the Board of Investments applications for incentives for GOCCs 9
Incentives menu • Enha hance nced net operating rating loss carry ry- • Depre reciat ciation ion allow lowan ance ce of qualif alifie ied capital tal over r (NO NOLCO LCO) ) (5 years) ars) expen penditure iture: • Exemption ion from om customs oms duty on • 10% for buildings imported orted capital tal equipmen uipment t and raw • 20% for machineries materials terials • Additional ional deduction tion of up to: • 100% for research and development (R&D) and training • 50% for labor expense • 100% for country-wide infrastructure development • 50% for reinvestment allowance to manufacturing industry • 50% for domestic input expense 10
In gener neral, l, registe istere red d firms ms do n not To creat ate 1 job, , it cost sts ult #2 perfo rform rm bett tter er on employm yment, ent, ult #1 Cost-benefit analysis expo port rts, s, and produc ucti tivit ity y compare red d tax axpayers payers at at leas ast t P252 52,7 ,706 06. esult esult to non-re regist gister ered ed firms. s. Res Res For every peso so spent nt on For every peso we incenti ntive, e, betwe tween en P0.6 .63 an and ult #3 ult #4 grant nt as incent entive ve, , P1.20 .20 comes es bac ack k in esult esult we collect ct 34 cents ts benef efits its. Res Res in tax axes. es. 11
Top 10 abuses of tax incentive regimes 1. Export zones – leakages into domestic economy 2. Regional investment incentives and enterprise zones – diverting activities to outside the region or zone 3. Transfer pricing schemes with related entities (through sales, services, loans, royalties, and management contracts) 4. Disguising or burying non-qualifying activities into qualifying activities 5. Domestic firms restructure as foreign investors 6. Existing firms transform into new entities to qualify for incentives 7. Churning or fictitious investments (lack of recapture rules) 8. Schemes to accelerate income (or defer deductions) at the end of a tax holiday period 9. Overvaluation of assets for depreciation, tax credit, or other purposes 10. Employment and training credits – fictitious employees and phony training programs Source: Harvard Kennedy School course on Comparative Tax Policy and Administration 12
More than tax incentives, we need... Skilled and hardworking talent Ambitious infrastructure Sizeable small and medium pool that needs sufficient development program that enterprise community that human capital investments requires fiscal commitment deserves to be treated fairly 13
Thank you! 14
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