The Department of Finance (DOF) and the Department of Trade and Industry (DTI) have reached a compromise agreement on the government’s plan to rationalize fiscal incentives extended to local and foreign investors.
A ranking DOF official said the DTI has already agreed to allow a DOF official to seat on the Board of Investments’ board.
This was a major source of disagreement before as Trade officials did not want to allow Finance officials to seat on the BOI’s board of directors. At present, the DOF department is not a member of the board but is only part of a consultation process by the DTI.
In a meeting, however, the two departments already agreed on a compromise deal.
The source said a Finance official would be allowed to seat on the board provided that fiscal authorities would also agree on a gradual phase out of income tax holiday (ITH) instead of totally removing this particular incentive.
As such, officials of the two departments agreed to support a gradual phase-out of the ITH which means that the new fiscal incentives bill would include a so-called sunset provision.
Furthermore, the two officials agreed that the ITH would be totally phased out once the country’s infrastructure investments reach five percent of gross domestic product from 2.7 percent at present.
With this development, lawmakers are now set to draft a new fiscal incentives bill which would include the inputs of the Trade and Finance departments. Earlier, the International Monetary Fund (IMF) also urged the government to rationalize the tax incentives given to local and foreign investors, saying that this would help the Philippines improve its fiscal position.
The IMF said that “tax incentives substantially reduce effective tax rates on corporate income.”
The DTI believes that incentives have strongly encouraged local and foreign investors to set up businesses in the country.
The government hopes to balance the budget this year after decades of incurring deficits. Last year, it recorded a budget deficit of P12.4 billion or significantly better than the programmed deficit of P63 billion.