THE country’s existing tax incentives are “effective.”
This is one of the initial findings of the cost benefit analysis (CBA) conducted by the National Economic and Development Authority (Neda) about the country’s tax incentives from 2016 to 2018.
In a press release by the Philippine Economic Zone Authority (Peza), Neda’s initial CBA study noted that, “For three years, an average 94.5 percent of all exports were made by Registered Business Enterprises (RBEs) under Peza.”
Neda’s findings support the appeal of the Mactan Export Processing Zone Chamber of Exporters and Manufacturers (Mepzcem Chamber Inc.) to the Senate to retain Peza’s powers to grant incentives to its registered export-oriented enterprises or else they will pull out of the country.
Mepzcem said the Corporate Recovery and Tax Incentives for Enterprises (Create) Act would clip the powers of Peza, which has administered the economic zones so well over the years.
Under the Create bill, Peza incentives, which include income tax holiday, duty-free importation of raw materials and capital equipment, domestic sales allowance, and exemption from payment of local government taxes and fees, will be “modernized” to include tax breaks of select investors.
In terms of economy-wide impacts, the Neda said “tax incentives increase domestic production” and “the export performance under the scenario with tax incentives indicated rising growth.” The study also showed that tax incentives appeared to help reduce poverty levels.
Neda conducted the CBA study under Republic Act 10708 or the Tax Incentives Management and Transparency Act.
Peza Director General Charito Plaza said Neda’s CBA is a credible study that is evidence to the agency’s call to the retention of its tax incentives.
“It is the key to the attraction of export-based investments in the country. More than labeling tax incentives as foregone taxes, tax incentives helped generate investments, employment and dollar earnings from exports,” she said.
“The findings in the preliminary study proves the importance and effectiveness of the tax incentives being given to investors and their presence in the country,” Plaza added.
Based on Neda’s CBA study, eight investment promotion agencies (IPAs) submitted data covering 1,687 companies. Peza RBEs have contributed the most of the data.
“Let us not change the rules in the middle of the game, especially in this crucial period of the pandemic and world recession. Changing and tinkering of the rules and incentives that are working will destabilize investment and the economy as it would lose the trust and confidence on the stability and attractiveness of the Philippines to foreign direct investments and export enterprises,” Plaza explained.
In terms of employment generation, Peza, Subic Bay Metropolitan Authority and Authority of Free Port Bataan contributed the most among the IPAs. Over the three years, 78.09 percent of employment were generated by RBEs under Peza.
Moreover, RBEs under Peza cover 94.5 percent of all exports. They also have the most imports at 92.7 percent to 97 percent. Industry-wise, the manufacturing sector was highly dependent on imports, comprising around 96 percent.
Senate President Pro-Tempore Ralph Recto said, “(The CBA shows that) the current tax incentives package is favorable to the Philippines” and that the “benefits outweigh the costs.”
RBEs under Peza received most of the tax incentives of about P42.5 billion to P50.3 billion each year. This is equivalent to 16.6 percent to 18.26 percent of the corporate income tax recorded from 2016 to 2018. Also, RBEs under Peza had stockholders’ equity equivalent to 4.17 percent to 5.69 percent of the equity market. (JOB with PR)