DOF mulls 5-yr limit to income tax holidays

MANILA, Philippines - The Department of Finance (DoF) may put limit income tax holidays (ITH) for five years or reducing the rate of corporate income tax firms have to pay, to reduce foregone revenues.

“Our preference is no ITH but if we cannot remove it, then it must only be given for five years,” Finance undersecretary Jeremias Paul, Jr. told reporters in a chance interview.

While the government recognizes that incentives are needed by local firms to be able to compete, he said there is also a need to assess what could be gained from granting perks.

“As a matter of principle, if you start a business, you are not earning. If you’re earning income, then you should pay tax,” he said.

“It (ITH) has to be time-bound. It can’t be given forever and ever,” he added.

Citing a World Bank study, he said that the ITH given to firms here translates to revenue loss worth about one percent of the country’s gross domestic product.

Another option being considered by the DoF as an incentive to encourage firms to invest here is to reduce the corporate income tax rate they have to pay.

Paul said that instead of granting ITH to firms as incentives, the corporate income tax they have to pay could be reduced to 15 or  20 percent from the current 32 percent.

“As a long term proposal, we have to reduce corporate income tax rate to be aligned to others in the region,” he said.

The government wants to simplify the country’s incentives regime as there are numerous laws in the Philippines which provide fiscal and non-fiscal incentives and subsidies to investors.

Both leaders of the Senate and House of Representatives have said earlier that the rationalization of fiscal incentives is among the economic reforms they would like to push for in the 16th Congress to avoid redundant and overlapping incentives.