The Board of Investments (BOI), an attached agency of the Department of Trade and Industry, will tighten its rules to guard against the unnecessary use of income tax holiday (ITH) incentives.
“We will come up with a consolidated formula for computing ITH that will take into consideration the fluctuations in the exchange rate and the prices of basic commodities,” Elmer C. Hernandez, Trade Undersecretary and BOI managing head, said in an interview over the weekend.
He said there is a need to devise a new scheme for competing ITH because tax breaks should only be applied to expansions. However, drastic changes in the foreign exchange and prices of commodities such as metals affect the current computation.
“If we don’t improve our manner of calculating ITH we would be giving incentives to existing operations,” Hernandez said.
He said the BOI still has not come up with the final formula but it will consider the changes in the prices of basic commodities and the movement of the peso against the greenback.
“The formula will address the appreciation of the peso, the drop of the dollar and also the increase in metal prices, sugar and other traded commodities.
The Trade official noted that this will not only be beneficial for the government. “This can work both ways. It can also be in favor of the registered firms,” he explained.
“We want to make sure that the government will not be short-changed and that firms will only get incentives from their new investments,” he added.
Once set, the BOI will implement the new scheme without the need of incorporating it in the new Investment Priorities Plan (IPP). Currently, Hernandez said some firms apply the ITH to the entire operations and not to the expansion only because companies file their income taxes in general terms.
As such, the government will not be able to distinguish directly if the increase in income of the company was a result of the expansion or external factors like the exchange rate and the prices of basic commodities.