More public spending to spur growth - DOF

MANILA, Philippines - The Department of Finance (DOF) is pushing for more public spending as a way to help businesses cope with the global financial crisis instead of tax cuts.

According to estimates by the DOF, public spending leads to more economic growth compared to tax cuts.

For instance, the DOF said that a P20-billion additional spending results in an additional economic growth of P64.4 billion.

On the other hand, DOF estimates further showed that a tax count of P20 billion only leads to an increase in income of P35.9 billion.

As such, the DOF is pushing for its version of the rationalization of fiscal incentives or tax perks given to investors instead of the version that has already been approved by the House of Representatives.

The DOF’s proposal calls for the phase out of income tax holidays — considered the most redundant type of tax incentive — over a six-year period or when the ratio of infrastructure to gross domestic product (GDP) is five percent or whichever comes first.

In lieu of ITH, the DOF’s proposal calls for a reduction in income tax of 15 percent based on net income or five percent based on gross income.

Furthermore, the department’s version also stressed the use of performance-based tax incentives on additional investments in capital and human resource.

On the other hand, the version approved by the House of Representatives did not call for a phase-out of ITH for exports, agriculture, infrastructure, shipping and strategic enterprises.

For other sectors, a phase-out of the ITH would require a joint resolution of the House of Representatives and the Senate.

Because it did not call for a phase-out of the ITH, the version approved by the House retained the six-year ITH for exporters, strategic enterprises and domestic enterprises in the 30 poorest provinces.

It also called for a four-year ITH for other domestic enterprises.

Finance Secretary Margarito Teves appealed to lawmakers to include provisions proposed by the Finance department when the bill reaches the bicameral level.

“We appreciate the action of the House in passing its own version of the Fiscal Incentives Reform. However, we hope that our major proposals can be supported by the House leadership when the bill reaches the bicameral stage,” the Finance chief said.