Remove All Tax Holidays – IMF

MANILA, Philippines - The International Monetary Fund (IMF) has suggested that the Philippine government removes all tax holidays and the tax on gross income earned (GIE) by investors to make the tax incentives system simpler and easier to understand, thus, enhancing the country's attractiveness to investors.

This was contained in the IMF Country Report No. 12/60 dated March 2012 entitled "Philippines: Technical Assistance Report on Road Map for a Pro-Growth and Equitable Tax System," which assessed the country's tax and tax incentives regime.

The report also recommended with a reduction in the CIT (corporate income tax) rate to at least 25 percent.

"It is likely to make the system simpler and easier to understand for investors, while also making it more transparent, equitable and efficient than the current regime. This regime, together with a reduction in the CIT rate, should enhance make the Philippines' attractiveness to investors," the report stressed.

If the preferred option is not considered feasible, IMF has proposed to rationalize tax incentives using the Department of Finance (DOF) bill as a base with the following amendments: limit the total period for all incentives to no more than 10 years; provide only two rate options: an income tax holiday followed by a 7.5 percent tax on GIE; or simply a 7.5 percent tax on GIE.

In recommending this option, the IMF noted that the period for providing incentives is still too long and should be reduced.

Most countries in the region, the IMF said, do not provide incentives beyond 10 years.

"The main reason for time-limiting incentives is that they are usually offered to attract firms to undertake a particular activity and/or to assist in their establishment. Once that objective is achieved - or at least enough opportunity given to do so - the incentive should cease," the report added.

The ITH being offered by the government total a maximum of eight years, but the 5 percent GIE offered by the Philippine Economic Zone Authority to its locators after they exhausted their ITH has no time limit.

The IMF has also recommended the abolition of the value-added tax zero-rating for suppliers outside the zones to exporters within the zones.

Both the Board of Investments and the DOF bills have pushed for the contiinued VAT zero-rating for suppliers outside the zones to exporters within the zones.

"The zero-rating in these cases is too prone to abuse and difficult to monitor, with leakage to the domestic market," the IMF said.

This measure was introduced partly due to the inadequacies of the VAT refund regime. These concerns are being addressed with the reform of the VAT refunds, so that there is less need for the zero-rating, the IMF noted.

Also recommended is to implement the grandfather rule to existing recipients of incentives, by allowing those incentives that are time-bound to expire, and phasing out those incentives that are not time-bound within a reasonable time frame.

In addition, the IMF would like the reduction of the list of IPP (Investment Priorities Plan) activities eligible for incentives.

Likewise, the IMF report has recommended the inclusion of a sunset clause for all incentive laws of no more than 5 years. (BCM)

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • US renews travel warning to Mindanao
    US renews travel warning to Mindanao

    The US State Department renewed its warning about the risks of travel to the Philippines, in particular to the Sulu archipelago, certain regions and cities of Mindanao and the southern Sulu Sea area. In an update on Wednesday of a travel warning it issued Nov. 20, 2014, the State Department said US citizens should continue to defer non-essential travel to the Sulu archipelago due to the high threat of kidnapping of international travelers and violence linked to insurgency and terrorism there. …

  • Phl gains support for APEC Action Agenda
    Phl gains support for APEC Action Agenda

    The Philippine initiative to put the interests of micro, small and medium enterprises (MSMEs) front and center in global and regional trade has made significant progress following the conclusion on Thursday of the 2nd APEC Senior Officials’ Meeting (SOM2) and Related Meetings in Boracay, Aklan. Called “The Boracay Action Agenda to Globalize MSMEs,” the Philippine proposal calls for a host of specific, concrete and practical interventions that APEC economies can implement to provide MSMEs wider …

  • Phl to join Bangkok meet on Rohingya crisis next week
    Phl to join Bangkok meet on Rohingya crisis next week

    The Philippines will join a 15-nation meeting in Bangkok, Thailand next week to address the migration crisis involving thousands of Rohingyas who escaped persecution in Myanmar and Bangladesh. Justice Secretary Leila de Lima bared this yesterday after meeting with United Nations High Commission for Refugees (UNHCR) representative to the Philippines Bernard Kerblat. In an interview, De Lima said the Philippine government has been invited to the meeting. …

  • Magnitude 4.2 quake jolts Sorsogon
    Magnitude 4.2 quake jolts Sorsogon

    LEGAZPI CITY—A magnitude 4.2 earthquake hit Prieto Diaz town in Sorsogon before dawn yesterday, the Philippine Institute of Volcanology and Seismology (Phivolcs) said. …

  • Drought-resistant rice breeds bared
    Drought-resistant rice breeds bared

    SCIENCE CITY OF MUÑOZ, Nueva Ecija – Amid the searing heat, the Philippine Rice Research Institute central experiment station here has identified nine rice breeds which have been proven to be drought-resistant and produce high yields in temperatures as high as 38°C based on a recent study. Thelma Padolina, lead researcher of the study titled “Screening of rice-induced mutants for heat and drought tolerance,” identified the breeding lines as the Ballatinaw lines, PSB Rc72H and Azucena lines. …

  • Phl, US assert rights, ignore China warning
    Phl, US assert rights, ignore China warning

    The United States military will continue air and sea patrols in international waters even after the Chinese navy repeatedly warned a US surveillance plane to leave the airspace over artificial islands China is creating in the disputed South China Sea. The Philippine government also declared it would continue activities in the region, calling on China to respect freedom of navigation and aviation. “Our position on the importance of letting freedom of navigation, freedom of aviation and …

  • MM shutdown eyed for quake drill; 6 schools warned
    MM shutdown eyed for quake drill; 6 schools warned

    Electricity and mobile phone services would be cut throughout Metro Manila, and all private and government offices and businesses, including shopping malls, would be closed. That would be the situation on July 16 between 3 and 8 p.m. to simulate the scenario of a 7.2 magnitude earthquake. The Philippine Institute of Volcanology and Seismology (Phivolcs) has warned that an earthquake of that magnitude could occur and kill at least 33,500 people and injure at least 113,600 others following a …

  • Subaru XV now priced among sedans
    Subaru XV now priced among sedans

    Motor Image Philipinas (MIP), the authorized distributor of Subaru in the country, has positioned its brand new crossover SUV, the Subaru XV, well within the sedan segment’s price range. This move, according to MIP, was made to give the public an opportunity to experience the brand’s unique automotive technologies by lowering its price. Buyers of […] The post Subaru XV now priced among sedans appeared first on Carmudi Philippines. …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options