Study proposes scheme to rationalize incentive program

There is a need to revisit the rationale for tax incentives because conflicting objectives have become more pronounced.

According to the Fiscal Incentives Revisited, a study paper written by Dr. Erlinda Medalla, the problem arose from the critical need of government to generate revenues to implement its various projects, thus explaining its conservative stance in its fiscal incentives policies.

On the other hand, there is an equal need for a more "generous" incentive system to be in place for the country to be able to compete for foreign direct investments.

The paper was made under the auspices of the Philippine Institute for Development Studies Pulong Saliksikan.

To remedy these needs, the paper provided a two-tiered approach for reforms towards rationalizing the fiscal incentive system: the generic incentives and the special incentives. In the generic incentives approach, there is no need for an investment priority plan or IPP drawn yearly by the Board of Investments (BOI).

Incentives will be given based on comparative advantage as determined by the BOI under its guidelines. Fiscal incentives include incentives for anti-pollution devices; double deduction for research and development; tax allowances for special economic zones locators; among others.

In the special incentives approach, there can be an IPP but implemented with stricter selection rules. The short list of an IPP will be prepared by an interagency committee composed of representatives from the BOI (chairman), National Economic and Development Authority (NEDA), Department of Trade and Industry (DTI), Department of Science and Technology (DOST), private sector and other agencies by invitation.

Fiscal incentives include those in the generic approach plus income tax holiday and tax and duty-free exemption on imported capital equipment.

"The incentives that will be given should not be time-bound to facilitate its implementation," said Export Development Council (EDC) deputy executive director Emmarita Mijares.

"The design of the incentives should be simple and easy to implement because there are incentives left unimplemented because of administrative difficulties where cost is the number one factor," echoed Alvin Diaz, representative from the Department of Finance (DOF).

Representatives from the BOI, Philippine Exporters Confederation, Inc. (PhilExport), Bureau of Internal Revenue (BIR) and other private sector and government agencies also attended the forum.

The paper will be redrafted on the comments and recommendations posted by participants. – Matilde Jimenez-Fernando, Philexport News and Features