MANILA, Philippines — Department of Trade and Industry (DTI) Secretary Gregory L. Domingo has proposed a combination of jobs generation and local value added (LVA) as more accurate basis in the granting income tax holiday (ITH) to investors.
“The idea is, rather than the shotgun approach on ITH where we grant it across the board for IPP-listed activities, the intent is to come up with a linkage with tax benefits granted to investors with the benefits the country receive from these investments,” said Domingo.
Domingo has proposed this idea during his talk with Senator Ralph Recto, chair of the Senate committee on ways and means, and Senator Manny Villar, chair of the Senate committee on trade and industry.
Domingo hopes that his proposal would be considered in the crafting of the Fiscal Incentives Rationalization bill.
Based on Domingo’s proposal, the government would only grant ITH to the extent of the jobs created and local value-added or local sourcing for required equipment and materials of a particular project. He said the computation should be based on specific formula and very measurable results. The incentives would be computed based on payroll and non-payroll value added.
In the payroll value added, the ITH given up by the government for the investor should be matched by the number of employees created.
In terms of non-payroll value added, this should be based on the amount of locally sourced equipment and materials needed for the project.
There could be exceptions also for strategic industries that are capital-intensive like the power sector and those industries that government would like to develop upstream.
At the end of the day, in order for companies to avail of ITH they should only submit the number of employes and the value added they have generated instead of income statements and schedule of depreciation of their capital equipment.
“This way, the benefits they derive from the government and the benefits gained by the government in giving up the incentives are more direct. The lower the local value-added and jobs created the lower the ITH,” said.
“This will motivate companies to act the way we want them to act,” he added.
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By: Bernie Cahiles-Magkilat
Source: Manila Bulletin, Sept. 15, 2011
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