The Department of Finance (DOF) has opened discussions in order to modernize and update the current fiscal incentives to be able to help evolve a tax system that is equitable, simple and efficient.

During a hearing on fiscal incentives at the House of Representatives, Finance Undersecretary Karl Kendrick T. Chua said the department is currently doing research and consultations to modernize the country’s fiscal-incentives packages to make the system performance-based, targeted, transparent and time-bound.

“We are currently preparing, doing our research consultations, and we are most open to working with the DTI [Department of Trade and Industry] to arrive at a package of modern fiscal incentives, coupled with our objective of, eventually, lowering the corporate income tax,” Chua said.

Chua, who is also the chief economist of the DOF, explained that the department is aiming for a fiscal-incentives regime that is performance-based. This means it should only be given to companies that provide jobs and productive investments for the country.

“First, it needs to be performance based, given only to projects and companies that actually deliver jobs or export or provide productive investment,” he explained.

Second, he said, is that it needs to be more transparent, meaning, letting taxpayers know where their taxes are being used.

He said the regime should be time-bound, as changes are happening regularly.

“It needs to be transparent, because this is a tax expenditure, people will need to know where their taxes are going and who are receiving them. We believe that starting next year, once we have data from Tax Incentives Management and Transparency Act [Timta], we may be able to, once and for all, understand what is really the cost and benefit of our 40 years of incentives regime,” he explained.

The third principle is making it more targeted, according to Chua. This means the incentives would be given to businesses or investments that really need it.

“You want to target these incentives only to the first investments who really need them. They are typically those who have very low financial return but have very high social return because they generate a lot of jobs or they generate and attract capital, technology, innovation, governance in the corporate sector,” he added.

The DOF undersecretary explained that fiscal incentives are a means to help companies that have just started out with their respective businesses and, therefore, should not be given indefinitely, which will help promote the welfare of corporations and businesses.

“Incentives are supposed to be given to help companies get a head start and to be competitive. However, if these are given indefinitely, then we are simply not promoting the welfare of the corporations and the country as a whole. And also to be fair to other cooperatives or small and medium enterprises, even the micro ones who work as hard as the large ones but do not get these incentives,” Chua said.

The DOF hopes to simplify the country’s fiscal-incentives regime through a new law that will compile existing laws with regard to incentives, to eliminate instances of confusion and complexity, and the modernization also making the incentives affordable for the government.

“I think we also need to be pragmatic; we need to provide fiscal incentives that we think are affordable, it needs to be part of the budget as a tax expenditure. We can use the upcoming Timta data to analyze whether the P100-plus billion of incentives that we give every year, that is around one percent of GDP, is actually benefiting the country in terms of better jobs and poverty reduction,” Chua said.

Source: http://dev.businessmirror.com.ph/dof-dti-tweaking-incentives-package/