A BASIC FRAMEWORK has been set for the Senate’s version of the fiscal incentives bill but continuing disagreements between the Finance and Trade departments could stall approval of the priority measure.
The bill, to be authored by Senator Ralph G. Recto, seeks to eliminate income tax holidays, opting instead for reduced income tax rates for businesses.
“The prospective framework will attempt to marry the provisions sought by the House of Representatives, the Senate, DoF (Department of Finance) and DTI (Department of Trade and Industry),” Mr. Recto, chairman of the Senate ways and means committee, told BusinessWorld last week.
Firms will be categorized either as export- or domestic-oriented, similar to the incentives bill earlier approved by the House. This is in line with the government’s move to prioritize exporters, granting them more perks to boost their competitiveness.
Benefits for domestic-oriented businesses, said Mr. Rector, will depend on whether they are micro, small and medium enterprises; are located in the 30 poorest provinces; or are priority industries, such as infrastructure, that support the public-private partnership program.
“All these businesses will still be under an income tax regime. There will be no income tax holidays like before. I don’t have numbers yet, but their income tax rate will be lower,” he said.
The Finance department also wants sunset provisions to limit the tax breaks, Mr. Recto added.
Income tax holidays were a major component in House Bill 4935 approved last month. It was allowed for export enterprises (six years), domestic enterprises (four years), strategic domestic enterprises (eight years) and domestic enterprises located in less developed areas (six years).
The draft incentives bill in Senate, said Mr. Recto, is still a “work in progress” as legislators await the executive version still stalled by “big differences” between the DoF and the DTI.
“The DTI wants to retain income tax holidays, and the DoF wants to remove them. I support the DoF in this case because we need to remove the redundancy of our tax perks and generate more revenues moving forward,” he said.
According to the Finance department, the government lost P16 billion in revenues yearly from 2000 to 2007 due to income tax holidays.
A revenue boost could also help the Philippines bag a coveted investment-grade credit rating, which could lure more investors despite the rationalization of tax breaks, Mr. Recto said.
Finance Assistant Secretary Ma. Teresa S. Habitan welcomed the development of a framework at the Senate, saying tax incentives have become abused and redundant.
Trade Undersecretary Cristino L. Panlilio, however, stressed: “We need income tax holidays to compete with other Asian neighbors”.
His sentiments were echoed by University of Asia and the Pacific economist Cid L. Terosa, who urged the government to prioritize investments as these would have a greater impact on the economy.
Despite the key disagreements, negotiations are still ongoing between the DTI and the DoF to hammer out a unified bill, Finance Secretary Cesar V. Purisima told reporters last week.
The fiscal incentives bill, identified as a priority measure by the Aquino administration, could be passed into law by the middle of 2012, Mr. Recto said.
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By: Diane Claire J. Jiao
Source: Business World, Sept. 18, 2011
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