The government needs to rationalize the tax system for businesses in the country to level the playing field for the benefit of over 800,000 local corporations that have been paying regular taxes, according to the Department of Finance (DOF).

DOF Assistant Secretary Paola A. Alvarez pointed out that, of the estimated 5,000 companies with registered activities in 14 investment promotion agencies (IPAs) in 2015, about 3,000 firms registered with the Philippine Export Zone Authority (Peza) claimed tax incentives amounting to more than P300 billion combined.

In contrast, over 800,000 other corporations registered in 2015 paid regular taxes. This means big companies under the Peza have been enjoying tax incentives and will continue to enjoy them in perpetuity without tax reforms being pushed under the Comprehensive Tax Reform Program Package 2.

Based on data from the IPAs submitted to the National Economic and Development Authority and those culled from the Tax Incentives Management and Transparency Act, Bureau of Internal Revenue (BIR) and the Philippine Statistics Authority, the DOF found out that:

• Registered firms enjoying incentives under the IPAs account for less than 1 percent of firms registered with the BIR;
• Employment of firms in IPAs, 2.5 million in total in 2015 (direct, indirect, outsourced, administrative and expatriates), accounts for only 6 percent of total employment in the country; and
• Compensation of firms in IPAs, P297 billion in 2015, account for only 6.3 percent of total compensation.

Alvarez said the government has been providing incentives for 50 years, “and we are among the most generous as we, for example, grant in perpetuity a 5-percent tax on gross income earned, in lieu of all taxes, including VAT [value-added tax] and local taxes. However, FDI [foreign direct investment] flows, despite improving in recent years, pale in comparison with our Asean peers.”

She added the current dual corporate tax and income-tax system has created an unfair structure where those who are paying the regular rate pay 30 percent of their net taxable income, while those receiving incentives pay much less, at around 6 percent to 13 percent.

“This is unfair, as corporations under the regular regime are contributing just as much as those that  are under the special regime,” she said.

The government is pursuing a comprehensive tax reform not to curtail a fiscal crisis or plug a deficit. Instead, the government is implementing a tax reform, along with other complementary reforms, to achieve its vision of a high-income country free of extreme poverty by 2040.

“Package 2 of the comprehensive tax reform will not take away all incentives granted to firms. Instead, Package 2 proposes an incentive system that is fair and accountable,” she said.

Source: https://businessmirror.com.ph/government-tax-reform-program-to-level-playing-field-dof/