The Department of Finance (DOF) is standing by its position that the power to grant incentives be transferred to the Fiscal Incentives Review Board (FIRB) and no longer in investment promotion agencies (IPAs). This comes as the Senate is expected to soon decide on the fate of the Corporate Income Tax and Incentives Rationalization Act (Citira) bill.
On Monday, Finance Undersecretary Karl Kendrick T. Chua emphasized the need for the expanded coverage of FIRB’s functions, including the approval of tax incentives for private businesses.
This as Senate Ways and Means Committee Chair Pia S. Cayetano is expected to sponsor the bill on Tuesday.
“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,” said Chua. “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.”
The FIRB, an existing interagency committee chaired by the DOF, currently grants tax subsidies to government-owned or -controlled corporations.
Chua noted there are 13 IPAs in the Philippines that are largely autonomous, each with its own mandate, menu of tax incentives and authority to grant them largely without the approval or knowledge of the DOF.
Moreover, he said the FIRB will also serve as the oversight body for the country’s 13 existing investment promotion agencies to ensure that registered business enterprises receiving tax breaks subsequently deliver the jobs and investment that they had promised when they sought such fiscal incentives from their respective IPAs.
“The FIRB is designed to promote the Filipino people’s interests by ensuring two things: first, that incentives granted will lead to the creation of more jobs for Filipinos; and second, that opportunities to apply for incentives are made available to MSMEs [micro, small and medium enterprises], many of which are currently unaware that they can apply for such tax incentives,” he said.
Further, Chua said the FIRB will also conduct regular monitoring and evaluation to assess businesses’ performance receiving incentives.
“In case they fail to meet their employment, investment and other targets, incentives may be withdrawn and put to better use,” he said.
“The FIRB will also promote the participation of a broader range of businesses by ensuring that the single and generous package of incentives under Citira is clearly communicated to a wide range of potential investors, especially Filipino MSMEs,” he added.
While 3,150 favored corporations now pay discounted corporate income tax (CIT) rates of 6 percent to 13 percent only, almost a million SMEs, which employ a majority of Filipino workers, pay the regular CIT rate of 30 percent, which is the highest in the region.
Chua noted that the FIRB is not a new idea.
“Several proposals have been made in past Congresses, including the bills of Albay Rep. [Joey] Salceda in 1998 and Sen. [Ralph] Recto in 2001.”
He pointed out the FIRB being proposed now is similar to Malaysia’s National Committee on Investment (NCI), adding that Malaysia has 33 IPAs across the country.
“In the past, there was some confusion and delay in the grant of incentives because of so many IPAs,” he said. “Thus, in order to streamline the application process, ensure better targeting and enhance the link between incentives and national priorities, the Malaysian government established the NCI in the year 2000 and enhanced it in 2019. It now serves as a high-level committee in charge of approving tax incentives.”
Last month, the Philippine Economic Zone Authority (Peza) submitted to Congress its proposed enhancements to CITIRA. The proposal was transmitted upon the request of legislators, who will convene in a bicameral conference once the measure is passed by the Senate.
However, the Peza deleted in its proposal the whole Chapter III of the CITIRA bill creating the FIRB.
An in petitioning for the removal of the FIRB, Peza wants to return the authority to confer and administer incentives to IPAs, including it. The FIRB is chaired by the finance chief, assisted by the secretaries of trade, of socioeconomic planning, of budget and the executive secretary.
Salceda, Chairman of the House Ways and Means Committee, earlier said the FIRB is the “people’s seat at the table” and that “no FIRB makes CITIRA meaningless.”
The Citira bill, also known as Package 2 of the administration’s Comprehensive Tax Reform Program, was approved by the House last year.
Apart from rationalizing incentives, the Citira bill will reduce CIT to 20 percent, from 30 percent at present, which is the highest rate in the region.