Comprehensive Tax Reform Program 1 Comprehensive Tax Reform Program - - PowerPoint PPT Presentation

Comprehensive Tax Reform Program

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Packa kage ge 1: TRAIN AIN

Comprehensive Tax Reform Program

Package ge 2

Lowe wer r corpo pora rate te incom

• me tax

ax while e broadening dening the he tax ax bas ase e by rat ationa ionalizing lizing fiscal incentives ntives

Lowered ed personal nal income me tax while e broadening dening the e consum umpt ptio ion n tax base

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• Removal of non-tariff barriers and streamlining of administrative

procedures

• Additional rice importation
• Importation of fishery products
• Expedite unloading of agricultural imports
• Other remedial measures to improve logistics, transport, distribution,

and storage of agricultural products

• Creation of a surveillance team

Administrative Order No. 13 s. 2018

Removing non-tariff barriers and streamlining administrative procedures on the importation of agricultural products

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Lower corporate income tax

Scheduled reduction may be advanced when adequate savings are realized from the rationalization of fiscal incentives

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Incentives must be

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Some incentives may be needed to attract investments that support our growth objectives.

Creat ate more and better jobs bs Promo mote resear arch ch and develop lopment nt Encourage rage innovat vation ion Stim imulat late domes mestic ic indust stries ies Divers versif ify produ duct ct spac ace (e.g., ., to higher value ue exports) rts)

However, they must be perfo rform rmanc nce-ba based ed, targe gete ted, time-bound bound, and trans nspare parent nt.

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We have a complex tax incentives system.

• 14 IPAs

s

• 136 investme

stment t laws s 200 non-in inve vestme stment t laws

• 946 ‘ecozones’ and

free eepor

• rts

ts We grant the most generous fiscal incentives since they are in lieu of all taxes and given forev ever.

Source: Individual country finance agencies and investment promotion offices. 7

Estimated forgone revenue due to tax incentives

Tax incentives in billion pesos

Type of tax Income tax Customs duties Subtotal

• tal

Import VAT (gross) Local VAT (gross) Local business tax Subtotal

• tal for incentive

ntives Leakage Total al

• No. of recip

ipie ients nts 2015 2015 86 18 104 104 160 37 TBD 301 301 43 344 344 2,844 2016 2016 121 57 179 179 TBD TBD TBD TBD TBD TBD TBD TBD 3,102

Source: TIMTA, DOF estimates. 8

Congress

Oversight of incentives Oversight of incentives IPAs process and approve the applications for incentives except those reserved for the FIRB

Processes and approves the applications for incentives for business entities

BOI

Board of Investments

FIRB

Processes and approves the applications for incentives for GOCCs

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Incentives menu

• Depre

reciat ciation ion allow lowan ance ce of qualif alifie ied capital tal expen penditure iture:

• 10% for buildings
• 20% for machineries
• Additional

ional deduction tion of up to:

• 100% for research and development (R&D)

and training

• 50% for labor expense
• 100% for country-wide infrastructure

development

• 50% for reinvestment allowance to

manufacturing industry

• 50% for domestic input expense
• Enha

hance nced net operating rating loss carry ry-

• ver

r (NO NOLCO LCO) ) (5 years) ars)

• Exemption

ion from

• m customs
• ms duty on

imported

• rted capital

tal equipmen uipment t and raw materials terials

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Res esult ult #2 Res esult ult #1

Cost-benefit analysis

Res esult ult #3 Res esult ult #4

For every peso we grant nt as incent entive ve, , we collect ct 34 cents ts in tax axes. es. To creat ate 1 job, , it cost sts tax axpayers payers at at leas ast t P252 52,7 ,706 06. For every peso so spent nt on incenti ntive, e, betwe tween en P0.6 .63 an and P1.20 .20 comes es bac ack k in benef efits its.

In gener neral, l, registe istere red d firms ms do n not perfo rform rm bett tter er on employm yment, ent, expo port rts, s, and produc ucti tivit ity y compare red d to non-re regist gister ered ed firms. s.

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1. Export zones – leakages into domestic economy 2. Regional investment incentives and enterprise zones – diverting activities to

• utside the region or zone

3. Transfer pricing schemes with related entities (through sales, services, loans, royalties, and management contracts) 4. Disguising or burying non-qualifying activities into qualifying activities 5. Domestic firms restructure as foreign investors 6. Existing firms transform into new entities to qualify for incentives 7. Churning or fictitious investments (lack of recapture rules) 8. Schemes to accelerate income (or defer deductions) at the end of a tax holiday period 9. Overvaluation of assets for depreciation, tax credit, or other purposes

• 10. Employment and training credits – fictitious employees and phony training

programs

Source: Harvard Kennedy School course on Comparative Tax Policy and Administration

Top 10 abuses of tax incentive regimes

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Skilled and hardworking talent pool that needs sufficient human capital investments Ambitious infrastructure development program that requires fiscal commitment Sizeable small and medium enterprise community that deserves to be treated fairly

More than tax incentives, we need...

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Thank you!

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