Philippines Seeks to Allay Fears about Upcoming Tax Incentives Management and Transparency Act

March 17, 2015 Posted by ASEAN Briefing Reading Time: 4 minutes

The Philippines’ Senate has introduced the Tax Incentives Management and Transparency Act, which attempts to create greater transparency around tax incentives. However, the new legislation has proven controversial – businesses have been fearful that they may lose their current tax breaks.

Speaking in the Filipino Senate, Senate President Pro-Tempore Ralph G. Recto, sought to allay investor fears that the proposed bill would have an adverse effect on the country’s business environment. There previously had been a proposal to the bill that would have required tax expenditures to be appropriated by Congress in order to form part of the national budget; however, this proposal had subsequently been rescinded.

Recto expounded that “This Bill will not appropriate tax incentives availed; it merely requires that they be accounted for. It does not tamper with the fiscal incentives presently enjoyed by companies; it only requires that their use be made transparent. It does not rescind, nor recall any investment perk; it just obliges companies and the government to record and report it.”

Therefore, the new act will not be used to provide evidence to the Department of Finance so that it can remove tax breaks from companies. Rather, the act will help support decision making based on the economic impact of the tax breaks. The Senate President went on to declare the government’s belief that tax breaks were an integral part of attracting foreign direct investment into the Philippines.

The government has been struggling to keep track of the use of tax incentives and is seeking to create a database so that it can come to an accurate and fair conclusion. Rector explained the conundrum that the government was currently facing: “In 2011, 4,581 registered firms plunked in US$2bn in investments, exported US$3.45bn worth of goods, and employed 162,498…The flipside is that in the same year, 1,318, or under one-third of the total, used PHP61.3bn (US$1.38bn) worth of tax expenditures, of which PHP45.6bn was in income tax holiday claims and PHP15.7bn was due to special and preferential rates.”

During his speech in the Senate, Rector took great pains to note the important role tax breaks play in encouraging foreign direct investment and in aiding the economic development of the Philippines. He also explained that the legislation merely aims to ensure that there is greater transparency surrounding the tax breaks given.

According to Rector, the new bill seeks to increase transparency by creating “a system which will monitor and track the tax incentives granted by investment promotion agencies… under the Bill, the Department of Finance, in coordination with the Bureau of Internal Revenue and the Bureau of Customs, shall create a Tax Incentives Tracking Program, a single database that will capture all data on tax incentives.”

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