Lawmakers face dilemma over Timta
April 6, 2015 at 14:13
by Recto Mercene -
THE Tax Incentives Management and Transparency Act (Timta) is one measure that President Aquino had promised to enact before his term ends. Now, with a little more than a year before Mr. Aquino steps down from office, the bill remains mired in controversy.
Timta seeks to promote transparency and accountability in the grant and administration of tax incentives to business entities, and private individuals and corporations. Critics, however, pounced on Timta, or House Bill (HB) 2942, authored by Rep. Maria Leonor Gerona-Robredo of Camarines Sur, for various reasons.
The Department of Trade and Industry (DTI) had also joined the opposition bandwagon. It issued a position paper, asking lawmakers to reconsider HB 2942, while the Joint Foreign Chambers of the Philippines(JFC) made the same appeal. Their concern was contained in a letter sent in March to House Ways and Means Committee Chairman Rep. Miro S. Quimbo of the Second District of Marikina City.
Other critics said HB 2942 “contains a bizarre and unique provision that would fix the amount of tax incentives for a given year by adding a ‘tax- expenditure account [TEA]’ to the General Appropriations Act [GAA].”
Among the salient features of the legislation is the creation of a TEA in the annual GAA, that would account for the incentives, pinning more accountability to how investment promotion agencies (IPAs) administer and grant such incentives, and providing the Bureau of Internal Revenue (BIR) authority to impose requirements before the award of such perks, among others.
The DTI had warned that Timta could open the incentives-granting process to legal challenges. Specifying the amount of incentives, insofar as these are construed as subsidies, could also violate the country’s commitments to the World Trade Organization (WTO), it added. Moreover, giving Congress the power to grant the amount of incentives could weaken the administration of the perks and “hurt” the country’s competitiveness. The latest government data show that foreign-investment pledges dropped by more than one-fourth in the final three months of 2014.
JFC has backed the DTI’s position on the bill, warning that the legislation, as is, would hurt the country’s competitiveness as an investment destination. It has argued that the scheme may violate WTO rules.
But contrary to the position of critics and foreign businessmen, officials of the Department of Finance (DOF) said in March that they would push for the immediate passage of the bill and source tax incentives for investors from annual state appropriations.
“Timta, or HB 2492, would bring Philippine fiscal policy to the 21st century by leveraging data on tax incentives to inform a better policy-development process and tax incentives system,” the DOF said.
The DOF said the passage of Timta is consistent with the reform objectives of the Aquino administration. The department said it bolsters transparency and accountability in how resources of the government are foregone for the private sector in the interest of economic development.
The Philippines, the DOF pointed out, remains one of the few countries in the world that cannot measure the total amount of tax perks—which represented losses to government coffers—given to investors.
“The aggregate amount of tax incentives granted by the government is largely unknown. Without updating our policy tools and monitoring systems, we cannot gauge their effectiveness, nor can we properly calibrate government decisions to optimize our economic growth potentials. The current situation simply will not do,” Finance Undersecretary Jeremias N. Paul Jr. said.
“This lack of information is troubling,” Finance Secretary Cesar V. Purisima said. “We are currently living in an age where data and information are premium commodities for effective decision-making. And yet, our current system forces us to blindly grant tax incentives to investors without understanding its full economic impact.”
JFC and the DTI are opposing the passage of Timta, claiming that it will “hamper the exercise and operations of IPAs, in view of the rigid government budgetary processes in the passage of the appropriation law, as well as the actual implementation of this system.”
Foreign business groups and the DTI had, likewise, warned that it would burden prospective investors, erode the country’s competitiveness, and lead to legal challenges. But the DOF maintains that such fears on Timta are unfounded.
“There is no reason why we cannot show the public the amount of incentives if we assume that we are granting them based on investors’ performance. The Filipino people have a right to know how and how well their money is being used toward encouraging investment in the country,” Purisima said.
Senate Bill 2669, a consolidation of bills authored by Senate President Franklin Drilon and Senate Pro Tempore Ralph Recto, provides for the monitoring of tax incentives with the creation of a Tax Incentives Information (TII) section in the annual Budget of Expenditures and Sources of Financing (BESF). Angara clarified that the Timta does not, in any way, affect the independence or autonomy of the IPAs or other government agencies to administer incentives granted by law to registered business entities and qualified private individuals or corporations.
Recto, for his part, clarified that the measure will not appropriate tax incentives availed. “The bill merely requires that the incentives be accounted for. It does not tamper with the fiscal incentives presently enjoyed by companies; it only requires that their use be made transparent,” Recto said.
“It does not rescind, nor recall any investment perk; it just obliges companies and the government to record and report it. Why? Because in taxation, it doesn’t mean that when taxes are forgiven, you can already forget about them,” he added.
Recto said the viability of an idea is tested on simulations of its implementation. “This saying is true in legislation, as in cooking: Just because a rose smells better than cabbage should not lead us to conclude that it makes a better soup.”
He said the Philippines offers incentives, or perks, to compensate for its “handicaps.” “When we have one of the highest power rates in Asia, when our ports are congested, our roads clogged, our airports crammed, and even data travel slow in the information highway, when business is choked with rules, then we try to offset these with tax holidays and the like,” Recto said.
“In short, we indemnify them with incentives,” he added.
The lawmaker said the same privileges are offered to local businessmen, “not because they are Filipinos but because patriotism is soluble in taxes.” In the foreign direct investment (FDI) race in the region, he said, the country lags behind its neighbors.
Citing official data, Recto said that in 2013, the $3.9-billion investments that flowed into the Philippines pale in comparison to Thailand’s $13 billion, Malaysia’s $12.3 billion and Indonesia’s $18.5 billion.
He said the country’s FDI haul was 1/20th of Singapore’s $64 billion, while Vietnam trounced the Philippines with their $8.9 billion in FDI, which is two-and- a-half times bigger than what Manila got.
Recto said it came as no surprise that on a per capita basis, the FDI per Filipino was $13.03 in 2011 compared to Vietnam’s $84.06 and Singapore’s $12,347 FDI per citizen. “Net FDI of the Philippines accounts for 1.12 percent of its gross domestic product, which is the lowest in the region,” he added.
He said he offered the above examples “to underscore the value of investments to our economy and to correct the misinformation that this bill is about making the enjoyment of tax incentives complicated and circuitous.”
Recto said that under the bill, the DOF, in coordination with the BIR and the Bureau of Customs, will create a Tax Incentives Tracking Program, a single database that will capture all data on tax incentives.
“In short, it’s like attaching a GPS on every tax incentive given,” he said.
Recto said registered business entities and qualified private individuals would submit to an IPA or a government agency the amount of tax incentives availed for the year and other data which may be required, like taxes and licenses paid.
A consolidated annual TII would then be submitted to the President and the chairmen of the Committees on Appropriations and on Finance of both houses of Congress as part of the annual BESF, he added. “Only the aggregate data, however, will be shown in the TII portion of BESF. This will include estimated claims of the preceding year, programmed for the present year and forecast for next year,” Recto said. “It will not bean-count the tax incentives per company,” he added.
But this isn’t only about encoding data in a spreadsheet. The DOF will also evaluate the impact of the tax incentives on the Philippine economy, Recto added.
He said tax incentives, when applied rigorously, should not be seen “from the limited prism of revenue loss, but from a wider vista of jobs generated and other economic opportunities created.”
According to the Batangas lawmaker, the TII is not designed to be a ledger of taxes waived alone. “There are other metrics to be considered, where the standard formula doesn’t apply, like the social good created by a company which had set shop in a rural area where others fear to tread.”
Recto said the argument on Timta should be an all points-of-view assessment, “not just dominated by one school of thought.”
“One agency may see a glass three-fourths drained of taxes, while one would see it as one-fourth full. One agency will say that the amount of taxes foregone is big. To which another agency can retort, which would you prefer, getting 10 percent of something or 100 percent of nothing?” he asked. Citing official data, Recto said that in 2011, 4,581 registered firms plunked in P92 billion in investments, exported $3.45 billion 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 P61.3 billion worth of tax expenditures, of which P45.6 billion was in income-tax holiday claims and P15.7 billion was due to special and preferential rates.
“It is premature to make conclusions out of such a sparse data. As I said, it is a tough balancing act. But before we weigh in with our opinion, we need a database, and this bill creates it. After all, we may be entitled to our own opinions, but not to our own facts,” Recto said.
