DOF: 1.5% of GDP lost from tax incentives

MANILA, Philippines - The Department of Finance (DOF) on Wednesday said the government lost at least 1.5 percent of gross domestic product in 2011 due to revenue loss from granting income tax holidays, reduced income tax rates and duty to investments.

DOF said based on the initial Tax Expenditures Report, the government lost P144 billion in 2011 from tax perks, which also translates to 9.3 percent of government's expenditures and 10.6 percent of government revenues during the year. The report only covered 29 percent of all firms registered in the governmemt's investment promotion agencies, making the figures conservative.

“With the current tax incentives system that has been largely unaccounted and uncoordinated, the government loses billions of pesos in revenues every year which could have helped improve our fiscal position,” Finance Secretary Cesar Purisima said.

The state agency is pushing for the enactment of the Tax Incentives Management and Transparency Act (TIMTA) and the Fiscal Incentives Rationalization (FIR) bill to improve the mechanism in granting tax incentives. DOF said TIMTA will help the government account for the magnitude of support given to a sector and the appropriateness of using tax incentives in achieving socioeconomic goals. FIR, on the other hand, coordinates the grant of incentives to different sectors.

"Tax incentives distort the tax structure of the Philippine economy. Through these twin fiscal incentives reform measures, in the long term the government will enhance the country's fiscal capacity to continue to build on its macroeconomic fundamentals, level the playing field and improve competitiveness and investment opportunities. Accounting for tax incentives needs to be transparent, and these tax incentives need to be granted properly,” Purisima added.

In its Fiscal Affairs Department report in November 2013, the International Monetary Fund said the Philippines has an incentives regime that is "very generous and unnecessarily complex."