Banking & Taxation

The Senate Committee on Ways and Means has begun conducting public hearings on the Fiscal Incentives Bill, which seeks to rationalize and simplify the grant and administration of fiscal and non-fiscal incentives to promote foreign and domestic investments in the Philippines.

At the hearing in April 30 this year, Commissioner Kim Henares of the Bureau of International Revenue (BIR) presented the Department of Finance's proposed version of the bill seeking to transform the Board of Investment (BOI) into a purely investment promotions agency. Under the DOF version, the granting of incentives shall a function solely of the Philippine Economic Zone Authority (PEZA).

This contrasts sharply with House Bill 4935, which establishes the BOI as the central agency responsible for industry development, investment promotion, investment facilitation, policy formulation and the administration of incentives including those of the PEZA's.

The DOF version similarly provides that incentives will be in a form of a subsidy where only those who need the help would get it. Tax expenditures will be given in lieu of the income tax holiday.

The business sector representatives present during the hearing stressed the importance of retaining incentives to continue attracting investors to the country.

The American Chamber noted that foreign investors would prefer existing fiscal incentives be retained given the fierce tax competition to lure investors in the region. Mr. Rhike Jennings cited the estimated P740-billion investments ($18 billion) last year, which was due to domestic incentives. He suggested that the ITH be retained, as was recommended in a 2010 study made by the International Monetary Fund (IMF). With dramatic rise in wage rates in China and other neighboring countries, the IMF study said international investors are looking at Southeast Asia to relocate. The government, he said, should maintain the momentum of attracting these investors through ITH.

The Philippine Independent Power Producers Association (PIPPA) meanwhile warned that the loss of ITH would translate to P4.2 billion additional cost to put up generation plants. This means additional .27 cents pass-on charge to consumers.

Noting that incentives in the proposed bill focus on the export industry, the Federation of Philippine Industries (FPI) pointed out that the bill puts the manufacturing industryat a disadvantage by giving more importance to the export industry. FPI stressed the importance of giving incentives to strategic industries.

The Senate is looking to pass the Fiscal Incentives Law before the year ends. Apart from the DOF version, SBs 2755, authored by Sen. Edgardo Angara, SB Nos. 2379 by Sen. Manny Villar and SB 2142 by Sen. Ralph Rector are under consideration by the Committee on Ways and Means chair by Sen. Recto..

The PCCI Tax Committee chaired by Ms. Tammy Lipana is awating the revised version of the DoF bill before coming up with a position. The committee is drafting a joint position with the Tax Management Association of the Philippines (TMAP). -- Fleur Nadua, Tax Committee

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