Favila backs limit on income tax holidays

Trade and Industry Secretary Peter B. Favila is supporting a proposal in Congress to temporarily limit the grant of income tax holidays so the National Government can strengthen its fiscal position and achieve a balanced budget.

The limitation of tax incentives, however, would only be temporary and a sunset provision must be included in the bill so that once government has regained its fiscal strength, it can again aggressively compete for investments through the grant of incentives, he said.

While Congress deliberates on the proposed limitation of tax incentives, Favila has ordered a review of all incentives already extended by the Board of Investments (BOI).

Favila said following consultations with the BOI’s legal experts, he had been assured that the BOI has the ability to "exercise restraint " in the grant of incentives.

The government, Favila stressed, is set on putting its fiscal house in order and will thus not carelessly grant excessive incentives.

Various foreign and domestic business chambers have admitted that incentives are not as important to them as government addressing the cost of doing business in terms of lower cost of utilities, adequate infrastructure, less corruption and increased efficiency.

It was not clear, though, if the review and possible limitation of incentives would affect recently approved projects.

Favila said that the process of approval is different from actual registration, thus giving the BOI leeway to limit the incentives it will grant even though previous policy has set the incentives that can be given.

Two major projects that could be affected by the incentives review are the third generation (3G) technology upgrade of mobile phone firms Globe and Smart Communications.

Based on the amount of their investments on their 3G upgrade and expansion, the BOI can grant them another six-year ITH holiday.

However, because of the huge profits of the two telecommunications firms some quarters are critical of allowing Globe and Smart to enjoy further tax benefits at a time when government badly needs the revenues.

The BOI had recently approved the grant of incentives to the 3G upgrade and expansion of Globe and Smart.