Package 2 COMPREHENSIVE TAX REFORM PROGRAM Corporate income tax and - - PowerPoint PPT Presentation
Draft for discussion. Subject to change. CTRP Package 2: Key concerns (as of 17 September 2019) Package 2 COMPREHENSIVE TAX REFORM PROGRAM Corporate income tax and incentives reform Key concerns and responses
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change.
COMPREHENSIVE TAX REFORM PROGRAM
http://taxreform.dof.gov.ph/publication/recent-presentations/
As of 17 September 2019
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change.
A. Economic 1. Package 2 will be inflationary. 2. Package 2 will result in job losses. 3. Package 2 will lower investment, both foreign and domestic. 4. Package 2 will miss out on the opportunity to attract investments exiting China amid the US-China trade war. 5. Package 2 will make tax incentives regionally less competitive. 6. Package 2 will cause uncertainties. B. Legal 7. Package 2 will violate the one-bill one-subject rule by including fiscal incentives and FIRB. 8. Package 2 will violate the non-impairment clause by providing a sunset for current incentives. 9. Package 2 will violate the due process clause by providing sunset provisions.
President to adjust the CIT rate and grant incentives to highly desirable projects.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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C. Governance
adding another layer of bureaucracy.
incentives.
D. Taxation 15.Package 2 will impose new taxes. 16.Lowering the CIT rate will not benefit the country. 17.The gross income earned (GIE) incentive should be retained because it reduces corruption and tax evasion.
18.Package 2 will kill the goose that lays the golden egg. 19.The present incentives system is not broken so why fix it? 20.PEZA is ready for war.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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F. PEZA 21.PEZA should be exempted from Package 2. 22.PEZA firms will move to other countries. 23.PEZA is prudent in giving incentives. 24.PEZA and its firms have been consistently pictured in a negative and undesirable way. 25.PEZA has the duty to respond on behalf of the PEZA locators. 26.PEZA incentives have more benefit than cost but these are not acknowledged by DOF. 27.PEZA was not consulted by DOF and was not given a chance by the President and the economic team to be heard. 28.PEZA will no longer be a one stop shop. 29.PEZA cannot promote SME development without incentives. 30.PEZA cannot promote regional development without incentives. 31.PEZA cannot develop the local value chain without incentives. 32.PEZA has contributed PHP 10.05 trillion to the economy from 2015 to 2017.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Package 2 will gradually lower the corporate income tax rate from 30% to 20%. This will remove the pressure for firms to increase prices. B. Inflation impact of Package 2 is limited to 0.34 percentage points (ppt) over the medium-term, or less than 0.1 ppt per year. C. Inflation in August 2019 reached a 3- year low of 1.7 percent and is expected to average 3 percent in 2020. D. This means inflation, even with Package 2, is expected to be 3.1 percent.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Sector Estimated inflationary impact over the medium-term (percentage points) Food manufacturing 0.00 Fishing 0.00 Livestock/meat 0.00 Tobacco and cigarettes 0.01 Garments manufacturing 0.00 Renewable energy 0.10 Hospital (IPA) 0.00 Hospital (regular) 0.00 Restaurant and hotel 0.10 Housing 0.01 Telecomms 0.18 Total inflationary from reforms 0.41 Total price impact from reduction in CIT (DSGE)
Total inflationary impact 0.34 Source: TIMTA data, PSA, and DOF estimates
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Notes on the methodology for inflation impact estimation (1/3)
inflationary impact are chosen (i.e, those that are included in the CPI basket). a. The following industries are included: food manufacturing, fishing, livestock/meat, tobacco, garments manufacturing, RE, hospital, restaurants, and housing.
a. For all sectors, the value-added share is assumed to be 43 percent (source: 2012 IO table). b. For the manufactured goods, the export mix is very hard to determine or not publicly available. It is assumed that 30 percent of the output is consumed domestically. For the sectors which are all domestically consumed, such as housing and education, no export mix assumption is implemented. c. The domestic RBE output is estimated by multiplying the RBE total sales with the domestic consumption assumed share. d. This is then divided by the total PHL sectoral output from the national accounts to get the share of the economy that will be affected.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
a. For sectors in the TIMTA, a profit-equalization method is used. In summary, this assumes that a firm raises prices and hence, net revenues, in order to preserve its net income before and after the reform. b. For sectors outside the TIMTA and subject to franchise tax, such as telecoms and airlines, the additional franchise tax of 3 percent is used as the price increase assumption. c. For sectors outside the TIMTA and enjoying special rates, such as education and health, the same profit equalization method is used on a sample of financial statements. d. The price increase due to VAT is assumed to be the full 12 percent. For products with VAT exemptions, such as raw agricultural products, a share of VATable output is assumed. e. For customs duty, since it has the same base as VAT, ratio and proportion is used to estimate the effective customs duty rate. f. The total price increase due to the various taxes is estimated by combining the 3 effects.
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Notes on the methodology for inflation impact estimation (2/3)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
and consumers. For goods which are more likely to be elastic, such as food manufactures, it is assumed that 75 percent is passed on to consumers. Meanwhile, for goods which are more likely to be inelastic, such as tobacco and health, it is assumed that the full price increase is passed on to the consumer.
weight in the CPI basket, and the assumed cost passed on to consumers are then multiplied to estimate the sectoral inflationary impact.
impact estimated from DSGE due to the reduction in CIT, at -0.07 ppt. The total estimated inflationary impact of P2 revised DOF proposal is 0.34 ppt over the medium-term as firms transition from the current regime to the proposed regime.
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Notes on the methodology for inflation impact estimation (3/3)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Package 2 will lower the corporate income tax rate. This will incentivize firms to create around 1.5 million jobs
B. Package 2 will provide performance-based incentives to promote job creation. A. For every job created, the firm can deduct 150% of the compensation. B. For every training provided, the firm can deduct 200% of the training cost. C. For buying local, the firm can deduct 150% of the input cost. This will help expand the domestic supply chain. D. For investing outside NCR and poorer regions, the firm can get longer incentives and help countryside job creation. C. Package 2 will remove unnecessary incentives. Even without incentives, majority of firms will continue to
market or factors of production are abundant to warrant continued operation.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
million is available as a contingent fund for unforeseen job displacement. This does not mean jobs will be loss. It means we are ready to face any scenario.
improve skills for the BPO sector to help them move up the job ladder.
available to enhance competitiveness of the
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CTRP – Package 2: Key concerns (as of 17 September 2019)
1. The IO method incorporates the lowering of the (corporate income tax) CIT rate. 2. The DSGE method incorporates both the reduction in CIT rates and the recovery of fiscal incentives, and represents an upper bound for the job estimates. 3. The significant reduction in the CIT frees up more capital for firms to invest and, in turn, create jobs. 4. The impact on jobs from the lowering of the CIT rate is strongly positive, and slightly higher after the fiscal incentives recovery. 5. For instance, job creation can reach about 140 thousand in 2021 with a 28% CIT rate and can reach around 1.5 million in 2029 with a 20% CIT rate. 12
Year 2021 2023 2025 2027 2029 CIT rate 28% 26% 24% 22% 20% Direct job creation 92,455 223,892 406,556 655,756 991,900 Indirect job creation 50,697 122,769 222,932 359,578 543,900 Total (IO method) 143,152 346,661 629,488 1,015,334 1,535,800 Total (DSGE method) 262,467 537,878 980,531 1,569,408 2,259,475 Sources: PSA, and DOF estimates
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. The decline in investment pledges is not
causing a decrease in investments, PSA reported a 60% year-on-year increase in FDI pledges for the second quarter of 2019, signaling confidence in the policies of the Duterte administration despite Package 2. B. The far majority of FDI do not need incentives. C. In 2018, the largest investment came from BOI firms and they do not receive forever incentives. D. In the past, approved investments were low even without Package 2, so how can critics blame lower investment solely on Package 2?
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CTRP – Package 2: Key concerns (as of 17 September 2019)
investment (FDI) pledges during the first half of 2019 shows that fears of investment flight due to the expected passage of CITIRA are unfounded.
quarter amounted to P49.58 billion, up 60.2% from P30.95 billion a year ago. The report is based on data from 6 of the 7 investment promotion agencies monitored by the Philippine Statistics Authority (PSA), which include the Board of Investments (BoI), Philippine Economic Zone Authority (PEZA), Clark Development Corporation (CDC), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), BoI-Autonomous Region in Muslim Mindanao (BoI-ARMM) and Cagayan Economic Zone Authority (CEZA).
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CTRP – Package 2: Key concerns (as of 17 September 2019)
The far majority of FDI do not need incentives.
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suggests that the majority of foreign investment do not need incentives.
and 2015, even without the proposed CITIRA.
that there is no need for forever incentives to attract investment.
than the whole Philippine FDI. This suggests that approved investment never or only partly materializes.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
The far majority of FDI do not need incentives.
16 16
1.97 1.30 0.13 9.80
1 3 5 7 9 11 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Approved foreign investments by investment promotion agency and foreign direct investments, in USD billions
BOI PEZA Other IPAs FDI
Source: PSA
and approved FDI means most investors don’t need incentives.
have been declining even without CITIRA.
higher than PEZA, suggesting that firms don’t need forever incentives to invest.
were consistently higher than total
investment don’t materialize.
USD billions
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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At the aggregate, FDI reached record highs in recent years despite declining approved foreign investments.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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Historically, PEZA attracted the most foreign investments, followed by the BOI.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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First quarter approved investments generally peak during election years.
14 5 6 119 32 64 18 21 4 47 22 19 50 37 22 26 23 14 20 40 60 80 100 120 140
PHP billions
Approved foreign investments in Q1
Source: PSA Note: Orange bars represent election years.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Package 2 provides superior and performance-based incentives to attract the right investors leaving China. B. Moreover, Package 2 offers superior incentives to the largest firms that the President can grant over and above the standard incentive package. C. The sooner we enact Package 2, the faster we remove uncertainty and the quicker the investment will come. D. The Philippines will never attract much investment if it continues to use incentives as band-aid solution instead of addressing infrastructure, government efficiency, and doing business concerns. This is what we are prioritizing now. E. Progress in achieving the 10-point socioeconomic agenda is advancing strongly. This is what investors look for.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
F. Most investments have not left China. They are on a wait-and-see mode and assessing the impact of the trade war on their business. G. Some investments have left China and they go to countries like Vietnam not because of incentives. H. Vietnam is the preferred manufacturing destination for exports because of its free trade agreements (FTA), transport networks, low labor cost, proximity to China, and better governance.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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World Bank 2005 World Economic Forum 2017-18
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Progress in achieving the 10-point socioeconomic agenda is advancing strongly.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Vietnam is preferred for export manufacturing because…
1. Free trade agreements (FTAs) A. Upcoming: Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Vietnam – EU FTA (EVFTA) 2. Vietnam’s proximity to China A. Situating manufacturing centers (e.g. Hai Phong) close to traditional hubs in China (e.g. Shenzhen) B. Many factories in Vietnam are foreign-owned, easier transfer of intangible assets 3. Transport networks A. Proximity to regional shipping routes B. 114 seaports C. Extensive railway network (e.g. Kunming, China – Hai Phong) 4. Low labor costs A. Monthly minimum wages range: USD 125 to USD 180 5. Governance A. Relatively stable government that continues to prioritize infrastructure investment
Source: https://www.china-briefing.com/news/vietnam-overtaking-china-us-export-manufacturing/
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Signed Free Trade Agreements (FTA) with Japan, China, Korea and the USA
Japan China Korea USA Philippines
Yes No No No
Indonesia
Yes No No No
Malaysia
Yes No No No
Thailand
Yes Yes No No
Singapore
Yes Yes Yes Yes
Vietnam
Yes No Yes No
Source: Asia Regional Integration Center
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Removing the forever incentives does not mean that we will reduce the competitiveness of incentives. B. Package 2 provides more competitive and performance-based incentives such as additional deductions for labor, training, R&D, local inputs, infrastructure, reinvestment, depreciation, and net operating loss carryover. These additional
are not present in the current incentives system and in many other countries. All these can incentivize the right type of investment. C. Moreover, firms can re-apply for incentives after the initial availment period as long as they qualify and innovate.
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CTRP – Package 2: Key concerns (as of 17 September 2019) 5 7 10 19 5 10 15 20 25
NCR Laguna, Bulacan, Cavite, Rizal Other areas Relocating to recovering areas Duration (in years)
Base ITH Base special rate Section 295 ITH Section 295 special rate Section 296 ITH Section 296 special rate Section 297 ITH Section 297 special rate
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Section 297. Relocating from urban areas Section 296. Recovering areas Section 295. Agribusiness or outside urban areas
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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Additional 3 years of incentives for:
A.
Registered activities relocating outside Metro Manila and selected urbanized areas adjacent to Metro Manila
B.
Agribusiness projects of registered enterprises located outside Metro Manila and urban areas
C.
Projects located in less developed areas or those recovering from armed conflict or a major disaster
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CTRP – Package 2: Key concerns (as of 17 September 2019)
29 Philippines (current): AFAB and APECO can give 20 years ITH Source: PWC, OECD, DOF staff research, IPA charters
4 7 9 12 15 15 15 15 20 20 25 2 3 3 1 1 4 5 5 3 4 5 5 10 15 20 25 30 Vietnam Myanmar Cambodia Philippines (CITIRA) Thailand Lao PDR Malaysia Singapore Brunei Darussalam Philippines (Current) Indonesia
Duration (in years)
*renewable if qualified
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CTRP – Package 2: Key concerns (as of 17 September 2019)
3 5 10 10 15 19 25 40
5 5 5 1 2 1 1 10 20 30 40 50 Cambodia Thailand Malaysia Myanmar Vietnam Philippines (CITIRA) Indonesia Singapore Philippines (current)
Duration (in years)
30
* Philippines (current): 5% of Gross Income Earned (GIE) is equivalent to about 15% of net income, on average. Duration has no bounds (forever). Sources: PWC , DOF staff research, IPA charters
Forever
*renewable if qualified
Forever
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CTRP – Package 2: Key concerns (as of 17 September 2019) 3 4 1 3 1 3 5 2 2 1 5 9 15 16 18 19 20 20 25 28 40
10 20 30 40 50
Cambodia Lao PDR Thailand Myanmar Philippines (CITIRA) Brunei Darussalam Malaysia Indonesia Vietnam Singapore Philippines (Current)
Duration (in years)
Maximum and minimum duration of income tax incentives across ASEAN
Notes: Cambodia – Securities (3), Rice (9) Lao PDR – Under developed areas without adequate infrastructure Thailand – A1 and A2: Knowledge based R&D, infrastructure related Myanmar – SEZ Brunei – high tech parks Malaysia – biotechnology companies Indonesia – SEZs Vietnam – Category 3: High technology, tach parks, software, powerplants, ports Singapore – Pioneer/ development and expansion incentive Philippines (current) – forever; ADAB and APECO fiscal incentives are cumulative up to 20 years
Forever
31 *renewable if qualified
Forever
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CTRP – Package 2: Key concerns (as of 17 September 2019) 15 12 20 25 8 7 15 7 2 10 20 30 40 USD 7 to 35m (Indonesia) In SEZ, below USD 35m (Indonesia) In SEZ, USD 35 to 70m (Indonesia) Relocated to recovering areas (Philippines, CITIRA) Over USD 35m (Indonesia) In SEZ, over USD 70m (Indonesia) All ecozones (Philippines, current)
Duration (in years) ITH Special rate
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Forever
Sources: PWC, country website
*renewable if qualified
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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5 10 15 12 10 8 5 7 10 10 20 30 40 Production of machinery and equipment; agricultural, hotel, and tourism sectors (Malaysia) Waste ecopark
technology companies (Malaysia) MSC*, R&D (Malaysia) Less-developed areas (Malaysia) Relocated to recovering areas (Philippines, CITIRA) Biotechnology (Malaysia) All ecozones (Philippines, current)
Duration (in years) ITH Special rate
Forever
*Multimedia Super Corridor (MSC) Sources: PWC, country website
*renewable if qualified
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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6 10 12 13 11 15 12 8 5 7 10 20 30 B1: Supporting industry (Thailand) A4: Domestic supply chain (Thailand) A3: High technology (Thailand) Targeted core technology (Thailand) A1 and A2: Knowledge based R&D, infrastructure related (Thailand) Nationally strategic sector (Thailand) Relocated to recovering areas (Philippines, CITIRA) All ecozones (Philippines, current)
Duration (in years) ITH Special rate
Forever
Sources: PWC, country website
*renewable if qualified
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CTRP – Package 2: Key concerns (as of 17 September 2019) 2 2 4 4 4 12 8 4 14 24 5 9 7 10 20 30 40 Cat.5: Non-urban industrial parks (Vietnam) Cat.4: Steel, forrestry, irrigation, crafts, agriculture (Vietnam) Cat.3: High technology, tach parks, software, powerplants, ports (Vietnam) Cat.2: Education, healthcare, cultural, and sports located in non-dfficult areas (Vietnam) Cat.1: Education, healthcare, cultural, and sports located in dfficult areas (Vietnam) Relocated to recovering areas (Philippines, CITIRA) Ecozones* (Philippines, current)
Duration (in years) ITH Special rate
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Forever
*Category 1 and 2 have lower special rates at 10 percent Sources: PWC, country website
*renewable if qualified
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CTRP – Package 2: Key concerns (as of 17 September 2019)
1.
Depreciation allowance of qualified capital expenditure:
a.
10% for buildings
b.
20% for machineries
2.
Additional deduction of up to:
a.
100% for research and development (R&D)
b.
100% for training
c.
100% for country-wide infrastructure development
d.
50% for labor expense
e.
50% for domestic input expense
f.
50% for reinvestment allowance in manufacturing industry
3.
Enhanced net operating loss carry-
4.
Exemption from customs duty on imported capital equipment and raw materials
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Summary of additional deductions incentives in ASEAN countries
**Additional deduction of 50% of the incremental labor expense if the prescribed ratio of capital assets to annual labor is met, additional deduction of 100% of the incremental labor if located in less-developed areas (cannot be availed of simultaneously with the ITH). Cells in red: no additional deductions Sources: Deloitte, KPMG, PWC
Country Additional deductions (percent) R&D Labor Training Capital expenditure Infrastructure development Investment/ reinvestment allowance Domestic input Philippines Current 50** CITIRA 100 50 100 100 50 50 Cambodia Indonesia 30 Lao PDR Malaysia 100 200 60 Myanmar Singapore 150 100 100 Thailand 300 200 100 25 Vietnam 10 37
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. The main cause of uncertainty is the long delay of legislating the reform. Investors prefer to wait until Package 2 is passed before investing. The sooner it is passed, the faster investment will flow in. B. The urgency is especially critical given the changing global environment and the US-China trade war. C. The DOF has been consistently pro-active and did not waste time in submitting the proposed package 2 last January 2018, immediately after the passage of TRAIN in Dec 2017. The House approved and transmitted TRABAHO last September 2018, but the Senate conducted only
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A.
The title of CITIRA is about the amendment to the National Internal Revenue Code (NIRC).
B.
The NIRC provides the regular tax rates, reduced tax rates, exemptions, and the institutions to administer and oversee tax collection, like the BIR, BOC, the various congressional oversight committees, and other agencies such as DBM in charge of monitoring the earmarked funds.
C.
Thus, including the incentives of IPAs such as reduced rates and exemptions of IPAs, and the governance of these incentives through the FIRB is consistent with the provisions of the NIRC.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. There are two requirements of the one-bill one- subject rule: completeness and germaneness. B. The one-bill one-subject rule is sufficiently complied with where the title is comprehensive enough to embrace the general objective it seeks to achieve, and if all the parts of the statute are related and germane to the subject matter embodied in the title or so long as the same is not inconsistent with or foreign to the general subject and title (Farinas vs. The Executive Secretary). C. The reduction of the corporate income tax, the rationalization of fiscal incentives, the expansion of the power of the FIRB, and the repeal of the provisions under the charters of the IPAs are not different subject matters as all pertain to the corporate taxation in the
constitutional requirement that every bill shall embrace only one subject which shall be expressed in the title thereof.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. The constitutional prohibition of more than one subject in an act does not impose any limitation on the comprehensiveness of the subject, which may be as comprehensive as the legislature chooses to make it, provided, it constitutes, in the constitutional sense, a single subject and not several. To constitute plurality of subject, an act must embrace two or more dissimilar and discordant subjects, that by no fair intendment can be considered as having any legitimate connection with or relation to each other. Within the meaning of the constitutional provision, matters which apparently constitute distinct and separate subjects are not so where they are not incongruous and diverse to each other. Generally speaking, the courts are agreed that a statute may include every matter germane, referable, auxiliary, incidental, or subsidiary to, and not inconsistent with, or foreign to, the general subject or
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CTRP – Package 2: Key concerns (as of 17 September 2019)
B. A legislation may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying
C. The constitutional requirement as now expressed in Article VI, Section 26(1) "should be given a practical rather than a technical construction. It should be sufficient compliance with such requirement if the title expresses the general subject and all the provisions are germane to that general subject. (Sumulong vs. Comelec)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Provisions alleged to be violative of the rule
Review Board (Section 30 of House Bill No. 4157 inserting new Sections 298 and 299, to the National Internal Revenue Code of 1997, as amended)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE-SUBJECT RULE: The rule
Constitution, to wit:
shall be expressed in the title thereof.
the lawmakers along with the people should be informed of the subject of proposed legislative measures. This constitutional provision, thus, precludes the insertion of riders in legislation, a rider being a provision not germane to the subject matter of the bill.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Cases
Purpose of the rule
is to apprise the legislators of the purposes, the nature and scope of its provisions, and prevent the enactment into law of matters which have not received the notice, action and study of the legislators and the public. In this case, legislators will be apprised of the amendments to be made as the bill is set to be deliberated in the committee and plenary.
(Log-Rolling) as well as surreptitious and/or unconsidered encroaches (Riders). Omnibus Bills are acts containing several subjects with unrelated matters representing diverse interests, the main
subjects in support of the whole act. (Fariñas vs. Executive Secretary)
bills of which the titles gave no information, and which might therefore be overlooked and carelessly and unintentionally adopted; and to fairly apprise the people, through such publication
considered, in order that they may have opportunity of being heard thereon by petition or
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Cases
In general
chooses to make it, provided, it constitutes, in the constitutional sense, a single subject and not several. To constitute plurality of subject, an act must embrace two or more dissimilar and discordant subjects, that by no fair intendment can be considered as having any legitimate connection with or relation to each other. Within the meaning of the constitutional provision, matters which apparently constitute distinct and separate subjects are not so where they are not incongruous and diverse to each other. Generally speaking, the courts are agreed that a statute may include every matter germane, referable, auxiliary, incidental, or subsidiary to, and not inconsistent with, or foreign to, the general subject or object of the act.” (Casco Company et. al. vs. Public Utility District No. 1 of Thurston Country)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Cases
germane to the general subject stated. It is not an objection that it covers more than the subject of the body of the act, but it most, in any event, cover less. It is not necessary that it index the details
All matters which are germane to the subject may be embraced in one act. Under the true rule of construction, the scope of the general title should be held to embrace any provisions of the act, directly or indirectly related to the subject expressed in the title and having a natural connection thereto, and not foreign thereto. Or, the rule may be stated as follows: Where the title of a legislative act expresses a general subject or purpose which is single, all matters which are naturally and reasonably connected with it, and all measures which will, facilitate the accomplishment of the purpose so stated are properly included in the act and are germane to its
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Cases
Completeness of Title
such precision as to mirror, fully index or catalogue all the contents and the minute details therein. It suffices if the title should serve the purpose of the constitutional demand that it inform the legislators, the persons interested in the subject of the bill and the public, of the nature, scope and consequences of the proposed law and its operation. (Lidasan vs. COMELEC and Tio vs. Videogram Regulatory Board)
the general subject and all the provisions are germane to that general subject. (Sumulong vs. COMELEC)
language of such precision as to mirror, fully index or catalogue all the contents and the minute details therein. It suffices if the title should serve the purpose of the constitutional demand that it inform the legislators, the persons interested in the subject of the bill and the public, of the nature, scope and consequences of the proposed law and its operation. (Lidasan vs. Comelec)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Cases
no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general subject. (Fariñas vs. Executive Secretary) Liberal interpretation of the rule
subject of an act shall be expressed in its title, the Court laid down the rule that – Constitutional provisions relating to the subject matter and titles of statutes should not be so narrowly construed as to cripple or impede the power of legislation. The requirement that the subject of an act shall be expressed in its title should receive a reasonable and not a technical construction. It is sufficient if the title be comprehensive enough reasonably to include the general object which a statute seeks to effect, without expressing each and every end and means necessary or convenient for the accomplishing of that object. Mere details need not be set forth. The title need not be an abstract or index of the Act. (Fariñas vs. Executive Secretary)
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CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Cases
be amended, there being no need to state the precise nature of the amendment. To lend approval to such a plea is to construe the above constitutional provision as to cripple or impede proper legislation.” (Alalayan vs. National Power Corporation)
practical rather than a technical construction. It should be sufficient compliance with such requirement if the title expresses the general subject and all the provisions are germane to that general subject." (Sumulong vs. Comelec)
51
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
ONE SUBJECT RULE: Opinion
where the title is comprehensive enough to embrace the general objective it seeks to achieve, and if all the parts of the statute are related and germane to the subject matter embodied in the title or so long as the same are not inconsistent with or foreign to the general subject and title.
power of the FIRB and the repeal of the provisions under the charters of the IPAs are not different subject matters as all pertain to the corporate taxation in the country. Thus, the provisions being germane, anciliary, incidental and subsidiary to the provisions of the NIRC, CITIRA does not violate the constitutional requirement that every bill shall embrace only one subject which shall be expressed in the title thereof.
52
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
A.
There is no contract in the first place as firms fill
B.
Tax incentives are not entitlements, but
C.
There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful.
D.
Being a mere statutory privilege, a tax exemption
at will by the granting authority. (Republic vs. Caguioa)
E.
The non-impairment clause under the Constitution cannot be invoked in the case of a revocation of the tax incentives as the clause yields to the government’s police power and power to tax.
53
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change. 54
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change. 55
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
1. The government validly exercises a regulatory and governmental function pursuant to its police power and power of taxation in granting incentives. The government is not acting in its private capacity so as to make such incentives an inducement of valid and substantial consideration for entities to register. Lastly, the incentives also emanate from a regulatory law and not from executive fiat alone. 2. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. (PAGCOR vs. BIR) 3. A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or repeal. (Republic of the Philippines vs. Caguioa)
56
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Provisions alleged to be violative of the rule
new Section 310 to the National Internal Revenue Code of 1997, as amended)
57
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: The rule
SECTION 10. No law impairing the obligation of contracts shall be passed.
integrity of contracts against unwarranted interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would change or modify the rights and obligations
58
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: Cases
Limitations to the rule
morals, peace, education, good order, safety, and the general welfare of the people prevail not
yield to the superior and legitimate measures taken by the State to promote public welfare.” (Surigao del Norte Electric Cooperative vs. Energy Regulatory Commission)
Bugal B’laan Tribal Association, Inc. vs. Ramos) and power to tax (Republic of the Philippines vs. Caguioa).
59
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: Cases
Contracts covered by the rule
concession by the legislature, not connected with any service or duty imposed” it is REVOCABLE by the power which made the grant. A state may, at its pleasure, withdraw and exemption which is a mere gratuity possessing no element of a contract, even though the corporation may have incurred expenses on the faith thereof. (Tax Principles and Remedies by Justice Japar B. Dimaampao)
the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. (PAGCOR vs. BIR)
60
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: Cases
power and power of taxation in granting incentives. The government is not acting in its private capacity so as to make such incentives an inducement of valid and substantial consideration for entities to register. Lastly, the incentives also emanate from a regulatory law and not from executive fiat alone.
61
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: Cases
private respondents are not absolute and unconditional as to constitute rights in esse – those clearly founded on or granted by law or is enforceable as a matter of law. These certificates granting private respondents a "permit to operate" their respective businesses are in the nature of licenses, which the bulk of jurisprudence considers as neither a property nor a property right. The licensee takes his license subject to such conditions as the grantor sees fit to impose, including its revocation at pleasure. A license can thus be revoked at any time since it does not confer an absolute rightWhile the tax exemption contained in the Certificates of Registration of private respondents may have been part
from being contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked. (Republic of the Philippines vs. Caguiao)
62
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: Cases
Republic of the Philippines vs. Caguioa:
renders its continuance doubtful. Being a mere statutory privilege,a tax exemption may be modified
change or repeal.
are not absolute and unconditional as to constitute rights in esse – those clearly founded on or granted by law or is enforceable as a matter of law.
Certificates of Registration of private respondents may have been part of the inducement for carrying
contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked.
63
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
INVIOLABILITY OF CONTRACTS RULE/ NON-IMPAIRMENT CLAUSE: Opinion
they do so under the prevailing incentive structure, which can be changed by Congress.
policy.
64
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
A.
Being a mere statutory privilege, a tax exemption may be modified or withdrawn at will by the granting authority.
B.
Further more, no new tax is being imposed and CITIRA does not tax past transactions.
C.
The legislative power to tax involves the power to determine the subject thereof - who to tax, who to exempt, the removal of the incentives, being statutory privileges, is being exercised under authority of a law that is valid or the Constitution
D.
Jurisprudence allows tax laws to apply retroactively so long as the law itself provides for its retroactive application (Hydro Resources vs CA) and the same is not so harsh to constitute the violation of the due process clause (Central Azucarera de Don Pedro vs CTA).
65
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Provisions alleged to be violative of the rule
the National Internal Revenue Code of 1997, as amended)
66
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
DUE PROCESS CLAUSE: The rule
imposed within the territorial jusridcition, and that there is no arbitrariness or oppression in the assessment and collection thereof.
have been complied with.
that is valid or the Constitution itself; and (b) after compliance with fair and reasonable methods
67
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
PROSPECTIVITY OF LAWS PRINCIPLE: Cases
rather than the occupying enemy. (Hilado vs. Collector)
harsh retroactivity of the law, however, may make it inequitable and violative of the constitution; similarly, due process is violated if the tax is oppressive. (Central Azucarera de Don Pedro vs. CTA)
that they infringe upon the due process of law clause of the Constitution; that taxes on income are not subject to the constitutional objection because of their retroactivity. (Fernandez vs. Fernandez)
68
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
A.
The provisions under CITIRA, delegates to the President the power to advance the scheduled reduction on RCIT and to grant incentives to highly desirable projects through the ascertainment of standards as provided. It does not leave these powers upon factual matters within the control of the President.
B.
As held by the Supreme Court, there is no undue delegation of the legislative power when only the discretion as to the execution of a law is given. This is constitutionally permissible. (Abakada Guro Party List vs. Executive Secretary)
C.
Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority. (Abakada Guro Party List
69
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
D.
There are several provisions in the tax code that gives precedence.
1.
Section 106A (old NIRC provision) gives the President the power to raise the VAT rate from 10 to 12 percent if conditions are met.
2.
Section 148 gives the President the power to suspend the next oil excise increase if conditions are met.
3.
Section 27A gives the President the power to lower the CIT rate if conditions are met.
70
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Provisions alleged to be violative of the rule
which amends Sections 27 and 28, respectively, of the National Internal Revenue Code of 1997, as amended)
30 of House Bill No. 4157 inserting a new Section 301 , to the National Internal Revenue Code of 1997, as amended)
71
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
NON-DELEGATION OF THE TAXING POWER: The rule
subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
delegated cannot be delegated). (Gerochi vs. DOE)
72
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
NON-DELEGATION OF THE TAXING POWER: Cases
Requirements for valid delegation
specialized administrative agencies is allowed as an exception to this principle. All that is required for the valid exercise of this power of subordinate legislation is that the regulation be germane to the objects and purposes of the law and that the regulation be not in contradiction to, but in conformity with, the standards prescribed by the law. These requirements are denominated as the completeness test and the sufficient standard test.
legislature such that when it reaches the delegate, the only thing he will have to do is to enforce it. The second test mandates adequate guidelines or limitations in the law to determine the boundaries of the delegate's authority and prevent the delegation from running riot.
73
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
NON-DELEGATION OF THE TAXING POWER: Cases
the law. This is constitutionally permissible. “Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority. In the above case, the Secretary of Finance becomes merely the agent of the legislative department, to determine and declare and even upon which its expressed will takes
conditions action as the executive alter ego or subordinate (Abakada Guro Party List (etc.) vs. Ermita, G.R. No. 168056, September 1, 2005)
but only of the discretion as to the execution of a law. This is constitutionally permissible. (Abakada Guro vs. Executive Secretary)
74
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
NON-DELEGATION OF THE TAXING POWER: Opinion
have been realized, as certified by the Secretary of Finance, on the basis of which the president may advance the scheduled reduction of corporate income tax rate. The authority to advance the reduction of tax rate is made contingent upon a specified fact or condition (realization of adequate savings). It does not leave the power to reduce corporate income tax rate upon factual matters within the control of the President.
75
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
DUE PROCESS CLAUSE: Why is there no violation of this rule?
granting authority.
exempt, the removal of the incentives, being statutory privileges, is being exercised under authority of a law that is valid or the Constitution itself. It is a valid exercise of legislative power.
retroactive application.
76
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
77
A. The Department of Finance (DOF) is mandated to generate and manage financial resources of the government. In 2020, it is mandated to raise PHP 4.1 trillion pesos. B. Despite this mandate, the DOF has very limited involvement in the granting of incentives. i. In the Philippines, DOF is a member of the board of only 2 out of 13 IPAs. ii. Even as a member, it is a miniscule voice in the PEZA board (1 out of 13 board members) and the PIA board (1
C. In Indonesia, income tax incentives require Minister of Finance approval. D. In Thailand, the tax agency is responsible for approving tax incentives to international business centers and for R&D activities. E. In Malaysia, Thailand, and Vietnam, the Ministry of Finance is a member of the board that grants fiscal incentives.
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change. 78
V I S I O N
budgetary which could be adequately financed;
private sector, and minimizes costs;
currencies that minimizes the impact of currency movements;
M I S S I O N
Our economy must be one of the most dynamic and active in the world, globally competitive and onward looking. The DOF shall take the lead in providing a solid foundation for the achievement of this objective, by building a strong fiscal position, through the following:
budgetary requirements;
M A N D AT E
Under Executive Orders 127, 127-A and 292, the Department of Finance is responsible for the following:
coordination with other concerned subdivisions, agencies and instrumentalities
and
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change. 79
IPA DOF board membership Aurora Pacific Ecozone (APECO) None Authority of the Freeport Area of Bataan (AFAB) None Bases Conversion and Development Authority (BCDA) None Board of Investments (BOI) None Clark Development Corporation (CDC) None Cagayan Economic Zone Authority (CEZA) None Philippine Economic Zone Authority (PEZA) Member (1 voice out of 13 members) PHIVIDEC Industrial Authority (PIA) Member (1 voice out of 10 members) Poro Point Management Corporation (PPMC) None Subic Bay Metropolitan Authority (SBMA) None Tourism Infrastructure and Enterprise Zone Authority (TIEZA) None Zamboanga City Special Economic Zone Authority (ZCSEZA) None Regional Board of Investments - ARMM (RBOI-ARMM) None
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change. 80
Country Incentives administration Finance agency involvement Role Board Notes
Philippines (current) Board of Investments, various investment promotion agencies (AFAB, APECO, BCDA, BOI, CDC, CEZA, PPMC, RBOI-ARMM) No administrative involvement Limited The DOF is a member in only the PEZA board (1 out of 13) and the PIA board (1 out of 10). Philippines (CITIRA) Fiscal incentives review board (FIRB) Approval Chair The FIRB shall administer, regulate, audit, and evaluate granting of incentives. Indonesia Indonesia Investment Coordinating Board (BKPM), The National Council for SEZ Approval Not a member Income tax incentives require Minister of Finance approval. Malaysia Malaysia Investment Development Authority, various IPAs, Ministry of Industrial Development Sabah, Ministry of Industrial Development Sarawak (for discretionary incentives); Inland Revenue Board of Malaysia (for statutory incentives)* Audit Member Minister of Finance approves projects for reinvestment allowance and for projects in the following sectors: transportation, communications, services, and utilities. Singapore Singapore Economic Development Board (for discretionary incentives); Inland Revenue Authority of Singapore (for statutory incentives)* Evaluation Not a member A Pioneer certificate or Development Expansion Incentive company must submit regular progress reports to the EDB for the evaluation of performance. Thailand Thailand Board of Investment (BOI) Approval Member The BOI makes all promoted companies’ profiles available in a searchable database on its website. Vietnam Foreign Investment Agency Vietnam Audit Member All tax legislation is prepared by the Ministry of Finance
*Statutory incentives are explicitly laid out by law. Discretionary incentives are dependent upon the administering body. Source: country websites, https://vietnam.oxfam.org/sites/vietnam.oxfam.org/files/file_attachments/Oxfam%20Tax%20incentive%20report%20ENG.pdf
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
A. The IPAs will process application for incentives and recommend to the FIRB. B. The FIRB will approve or disapprove all applications for incentives. But these shall be deemed approved if not decided upon by the FIRB following the EODB- mandatory max processing time. C. This layered approval is good practice to ensure that decisions are prudently
projects go through three levels of approval: ICC technical, ICC cabinet, and NEDA board approval.
81
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
82
BOI determines the priority sectors through the Strategic Investment Priority Plan (SIPP)
BOI
Board of Investments
RBOI- ARMM
Approval/disapproval
IPAs recommend the tax incentives to be given to registered enterprises
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
A. There are 133 investment and 209 non- investment laws (total of 342) that provide incentives outside the tax code. B. The IPP covers 815 industries out of 1,265 (64 percent of all industries) based on the 5-digit PSIC. C. As a result, up to 69 percent of the country’s GDP can potentially be given incentives. D. This implies that the current targeting is not focused.
83
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change.
Current incentives system: 133 investment-related fiscal incentive laws
EO 22 Reducing the Rates of Duty on Capital Equipment RA 8550 Fisheries and Aquatic Resources RA 9275 Water Quality Management RA 7353 Rural Banks PD 66 Export Processing Zone Authority PD 87 Oil Exploration and Development Act RA 8407 Manila Jockey Club, Inc. RA 9513 Renewable Energy RA 9003 Ecological Solid Waste Management Program RA 9136 Electric Power Industry Reform Act of 2001 RA 8756 Regional or Area Headquarters RA 7916 PEZA EO 226 Omnibus Investment Code of 1987 RA 9178 Barangay Micro Business Enterprises RA 9379 Defining Handline Fishing RA 10771 Green Jobs EO 290 Natural Gas Vehicle Program RA 9295 Philippine Domestic Shipping RA 9400 Amending RA 7227-BCDA RA 7906 Thrift Banks PD 529 Petroleum Exploration Concessionaires RA 9490 Aurora Special Economic Zone RA 7844 Develop Exports RA 9593 Tourism Act of 2009 PD 538 Phividec Industrial Authority RA 9501 Magna Carta for Small Enterprises RA 10817 Halal Export Development PD 1869 PAGCOR RA 10068 Promotion of Organic Agriculture RA 10083 Aurora Special Economic Zone RA 7884 National Dairy Authority RA 7151 Cebu Air, Inc. RA 10601 Agricultural And Fisheries Mechanization RA 10654 Unregulated Fishing PD 972 Coal Development Act of 1976 RA 7961 CRUZTELCO RA 10816 Farm Tourism In The Philippines PD 705 Forestry Code of the Philippines RA 6847 Philippine Sports Commission RA 8098 BEAM, Inc. RA 8099 Sagay Broadcasting Corporation (SBC) RA 8065 Isla Cellular Communications, Inc. RA 8144 Azimuth Broadcasting Corp. RA 8158 Jorge D. Bayona PD 1174 Amending Coal Development Act of 1976 RA 7156 Mini-Hydro Electric Power RA 8446 Fil-Asia Racing Club EO 182 CARS Program RA 7308 National Seed Industry RA 8047 Book Publishing Industry RA 7942 Philippine Mining Act of 1995 RA 7076 Mining RA 8423 Traditional and Alternative Health Care RA 8479 Downstream Oil Industry RA 10926 Smart Communications Inc. RA 9267 Securitizations Act RA 7922 Cagayan Special Economic Zone of 1995 RA 10900 Bell Telecommunication Philippines Inc. PD 1590 Philippines Airlines, Inc. RA 9856 REIT Act of 2009 RA 7718 Infrastructure Projects by the Private Sector RA 7903 Zamboanga City Special Economic Zone Authority RA 8066 Isla Paging Company RA 8424 NIRC RA 7471 Philippine Overseas Shipping Development Act RA 6848 Al-Amanah Islamic Investment Bank RA 7909 Pacific Airways Corporation RA 10863 CMTA RA 7859 Worldwide Communications, Inc. RA 7953 Philippine Racing Act, Inc. RA 8145 Radyo Pilipino Corporation RA 7900 High Value Crops RA 7962 Philippine Broadcasting Corporation RA 7963 Cebu Broadcasting Company RA 8169 GV Broadcasting System Inc RA 7969 Central CATV, Inc. RA 10884 Urban Development and Housing Act of 1992 RA 7966 ABS-CBN Broadcasting Corporation RA 8339 Air Philippines Corporation RA 8095 Islatel Corporation RA 8502 Jewelry Industry Development Act of 1998 RA 7967 Pacific Broadcasting System, Inc. RA 8097 Partido Broadcasting Center RA 9511 National Grid Corp.
DEPARTMENT OF FINANCE
84
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change.
(cont.) Current incentives system: 133 investment-related fiscal incentive laws
RA 7939 Island Country Telecommunications, Inc. RA 8060 Palawan Broadcasting Corporation . RA 8004 Millenia Telecommunications Corporation RA 8063 Beacon Communications System, Inc. RA 7583 Aboitiz Air Transport Corporation RA 8067 Radio Gubat Network, Inc. RA 8080 Asian-Pacific Broadcasting Company, Inc. RA 8096 Allied Broadcasting Center, Inc. RA 8094 Ipil Broadcasting News Network, Inc. RA 8121 M.S. Network Management, Inc. RA 8116 VIMCONTU Broadcasting Corp. RA 8123 Royal Broadcasting Corporation RA 8119 Good News Sorsogon Foundation Inc. RA 8132 Jose M. Luison and Sons, Inc. RA 8154 Prime Broadcasting Network, Inc. RA 8149 Tagbilaran Broadcasting System EO 488 Compressed NatGas (AFTA) RA 8180 downstream oil industry RA 10378 Recognizing Principle of Reciprocity RA 7925 Public Telecommunications Policy Act RA 7111 Overseas Workers Investment Fund Act RA 10972 Infocom Communications Network, Inc RA 4540 Clavecilla Radio System ( Globe Telecoms) RA 7633 International Communications Corporation RA 8068 Agusan Telecommunications Foundation Inc PD 1442 Exploration and Development of Geothermal Resource RA 11321 Sagip Saka Act RA 11089 Streamtech Systems, Inc. RA 11256 Gross International Reserves RA 11285 Energy Efficiency Act RA 7227 Bases Conversion and Development Authority RA 8071 VisMin Radio and Television Broadcasting Network, Inc.. RA 9337 Philippine Airlines, Cebu Pac, Aboitiz Air Transport, Pacific Airways RA 8120 Andres Bonifacio College Broadcasting System, Inc. RA 8128 Oriental Mindoro Management Resources Corporation (OMARCO) RA 7918 Amending Art. 39 Incentives to Registered Enterprises RA 8004 Millennia Telecommunications Corporation RA 9301 Amendment to RA 7471 –Overseas Shipping PD 1491 Philippine Veterans Investment Development Corp RA 8748 Amending RA 7916- Special Economi Zone Act of 1995 EO 619 Special Economic Zones inside the Clark Freeport RA 7277 Self-Development and Self-Reliance of Disabled Persons RA 8102 Ultimate Entertainment Inc RA 7160 LGC RA 8032 Philippine Radio Corporation RA 7783 Major Telecoms EO 97-A Subic Special Ecozone RA 9367 Biofuel Program RA 8298 Metro Manila Turf Club, Inc. RA 8147 Southern Broadcasting Network RA 8122 Swara Sug Media Corporation RA 7816 Manila Broadcasting Company RA 8027 Kaissar Broadcasting Network, Inc PD 972 Coal Development Act of 1976 RA 8153 Rex Electronics Communications System RA 7299 as amended by RA 10773 Eagle Broadcasting Corporation RA 11151 Innove Communication
DEPARTMENT OF FINANCE
85
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change.
Current incentives system: 209 non-investment-related fiscal incentive laws
RA 6657- Comprehensive Agrarian Reform Law RA 9040- AFP Benefits & Allowances RA 7820- Partido Development Administration RA 9509– Barangay Livelihood and Skills Act of 2008 PD 857- Philippine Port Authority RA 6982- Social Amelioration Program In The Sugar Industry RA 7291- Veterans Federation of the Philippines RA 9509– Barangay Livelihood and Skills Act of 2008 RA 8044- National Youth Commission RA 6958- Mactan Cebu International Airport Authority RA 7686- Dual Training System RA7798- “Education Act Of 1982” RA 10618- Rural Farm Schools RA10604- Iloilo State University Of Science and Technology RA 6038- Total Electrification of the Philippines RA792- Camiguin Polytechnic State College RA 9720- Ifugao State University RA 7945- Dr. Emilio B. Espinosa, Sr. Memorial State College RA 8193- Jose Rizal Memorial State College RA 8292- Higher Education Modernization Act RA 9746- University Of Antique RA 8365- Rizal Technological University RA 10228- Central Philippines State University RA 9497- Civil Aviation Authority Of The Phils RA 10143- Philippine Tax Academy RA 8794- Motor Vehicle User’s Charge Autonomous Region RA 7653- New Central Bank Act RA 6766- Cordillera Autonomous Region RA 9854- Caraga State University RA 8438- Cordillera Autonomous Region RA 6768- Balikbayan Program RA 10585- Cotabato State University RA 9054- ARMM RA 9174– Amending RA 6768 - Balikbayan Program RA 8492- National Museum Act of 1998 RA 10066- Strengthening the NCCA P PD1127- Asia Foundation RA 8367- Non-stock Savings and Loan Association Act of 1997 RA 9510- Credit Information System RA 10073- Girl Scouts of the Philippines RA 9721- Romblon State University RA 9521- National Book Development Trust Fund RA 7278- Boys Scouts of the Philippines RA 7355- Manlilikhang Bayan RA10594- Talisay City State College RA 7306- People’s Television Network,Incorporated (PTN, Inc.) PD 1362-Radio Broadcasting & Television RA 10390- Amending RA 7306 – PTN, Inc. RA 9273– Capiz State University RA 8370- Children’s Television Act of 1997 RA 7354- Philippine Postal Corporation RA 9313–Samar State University RA10598- Compostela State College RA 9520- Amending the Cooperative Code of the Philippines RA 10744- Credit Surety Fund Cooperative Act RA 9314– Batanes State College RA 9159– J.H. Cerilles State College RA 7356- National Commission for Culture& the Arts RA 10086- Strengthening Peoples' Nationalism RA 9403–Bataan State University (BPSU) RA 9029- Partido State University RA 9442- Amending theMagna Carta for Disabled Persons RA 9167- Film Development Council RA 10584-Kalinga State University RA 8557–Philippine Judicial Academy RA 7917- Amending Section 8 of BCDA of 1992 RA 7079- Campus Journalism Act of 1991 RA 7168– Philippine Normal University RA 8688–Cebu Normal University RA 3676- Ramon Magsaysay Award Foundation RA 7079- Campus Journalism Act of 1991 RA7666– Sorsogon State College RA 9138- Guimaras State College RA 6807- Davao Oriental, State College Of Science &Technology RA 7373- Eastern Visayas Science High School RA 9456– Bukidnon State University RA 9158– Leyte State University RA 7306- People’s Television Network,Incorporated (PTN, Inc.) RA 8525- Adopt-A-School Program RA 9055- Aklan State University RA 9500- University of the Philippines RA 8461–Philippine Science High School Lanao Del Norte Campus RA 8547–Ilocos Sur Polytechnic State College RA 9722 – Bohol Island State University RA 8563 – Apayao State College RA 8498 –Ramon Magsaysay Technological University RA 10229–Catanduanes State University RA 10599- Palompon Polytechnic State University RA 9647– Philippine Normal University RA 8548–Bulacan National Agricultural State College RA 8562 –Bataan Polytechnic State College RA10597- Northern Iloilo State University RA 9045- Batangas State University RA 10231- Bicol State College of Applied Sciences and Technology RA10600- Surigao Del Norte State University RA 10595- Iloilo Science And Technology University RA 9157- University of Rizal System RA 8612 –Nueva Ecija University Of Science And Technology RA 10596- Mindoro State University (MINSU) RA 9395 –Southern Luzon State University (SLSU) RA 8468– Cavite State University RA 8651- Adiong Memorial Polytechnic State College RA 9744- Cebu Technological University (CTU) RA 9966- Sultan Kudarat State University (SKSU) RA 9718- Naval State University RA 9142- Zamboanga City State Polytechnic College RA 9717- Central Bicol State University RA 10085- North Luzon Philippines State College RA 7166–Electoral Reforms RA 9083- Sta. Rosa Science and Technology High School RA 7605- Philippine State College of Aeronautics RA 9998- Surigao Del Sur State University RA 9369- Automated Election System RA 9402–Laguna State Polytechnic University RA 9261–Southern Leyte State University RA 9852- Jose Rizal Memorial State University RA 8749- Clean Air Act of 1999 RA 10650- Open Distance Learning In Levels Of Tertiary Education RA 10230- Quirino State University (QSU) RA 10229–Catanduanes State University RA 10174- Peoples Survival Fund RA 9147- Conservation of Wildlife Resources RA 9486- Central Cebu Protected Landscapes RA 9847- Mount BanahawProtected Landscape RA 7157- Foreign Service Act of 1991 RA 10629- 75% Retention Of The Revenues To The IPAF RA 10067- Tubbataha Reefs Natural Park RA 7459- Incentives to Filipino Inventors RA 10165- Foster Care RA 6675– Medicines Identified By Their Generic Names RA 8980–Early Childhood Care and Development RA 7875- National Health Insurance Program RA 7719- Voluntary Blood Donation RA 9519- Mindanao University Of Science and Technology (MUST) RA 9272–Nueva Vizcaya State University RA 9289–Marikina Polytechnic College RA 10028- Breastfeeding RA 9260– The Western Philippines University RA 9312–Eastern Samar State University RA 9311–Eastern Visayas State University RA 10747- Rare Disorders RA 11054 Bangsamoro Basic Law RA 11039 Electric Cooperatives RA 11220 Davao Del Sur State College RA 11037 National School Feeding Program RA 11150 South Coutabato State College RA 11215 National Integrated Cancer Control Act RA 10932 Anti-hospital deposit RA 11291 Magna Carta of the Poor RA 11035 Balik Sscientists Program
DEPARTMENT OF FINANCE
86
Draft for discussion. Subject to change.
CTRP – Package 2: Key concerns (as of 17 September 2019)
Draft for discussion. Subject to change.
RA 9299–Negros Oriental State University (NORSU) RA10605- Pampanga State Agricultural University RA 10800–Tarlac Agricultural University RA 8282- Social Security System RA 9679- Amending the Pag-Ibig Fund RA10646- Quezon City Development Authority RA 8763- Home Guaranty Corporation RA 10001- Taxes on Life Insurance RA 8371- National Commission On Indigenous Peopl RA 9832- Don Honorio Ventura College RA 8291– GSIS Coverage and Benefits ADB – Philippines RA 9207 – Disposition of NG Center Site RA 9904 - Magna Carta for Homeowners RA 9505- Personal Equity and Retirement Account UNESCO – Florence Agreement RA 9576- Deposit Insurance Coverage RA 10846- Liquidation Framework for Banks RA 7932- Agusan Del Sur State College RA 6715- Collective Bargaining RA 10142- Liquidation of Financially Distress Enterprises RA 10583- Mountain Province State University RA 9719- Northwest Samar State University RA 8042– Overseas Employment PD 292- Southeast Asian Fisheries Development Center PD 380- Revising the Charter of NAPOCOR RA 9245- Philippine National Ear Institute RA 10801–O W WA PD1620- International Rice Research Institute (IRRI) RA 10071- National Prosecution Service PD 269- “National Electrification Administration” RA 9999- Free Legal Assistance RA 10693- Nongovernment Organizations Microfinance RA 10072- Philippine National Red Cross RA 7696- Upgrading The Benefits for Military Veterans RA 6975– Philippine National Police RA10349- Revised AFP Modernization Program RA 4917- Retirement Benefits Of Employees RA 6963- Benefits To The Family Military Personnel RA 2067- Science Act of 1958 RA 6395- Revising the Charter of the NAPOCOR RA 9257- Additional Benefits to Senior Citizens RA 9994- Additional Benefits to Senior Citizens PD 1183- Travel Tax RA 10865– Mayor Hilarion A. Ramiro Sr. Medical Center RA 6971- Productivity Incentives Act of 1990 RA 10591- Law On Firearms And Ammunition R RA 7876- Senior Citizens Center RA 10022- Migrant Workers and Overseas Filipinos Act of 1995 RA 10368–Victims of Human Rights Violations RA 10919–University of Science and Technology of Southern Philippines PD1264- Amending RA 95 - to Incorporate the Philippine National Red Cross RA 10121- Philippine Disaster Risk Reduction and Management System RA 3589- National Science Development Board RA 9146- Northwestern Mindanao State College of Science and Technology RA 10687- Unified Student Financial Assistance System For Tertiary Education RA 10699- Incentives to National Athletes & Coaches RA 9151- National Apiculture Research, Training And Development Institute PD 1171- Southeast Asian Regional Center for Graduate Study and Research in Agriculture EO 1037 – Philippine Retirement Park System
(cont.) Current incentives system: 209 non-investment-related fiscal incentive laws
DEPARTMENT OF FINANCE
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Number of industries covered Count Share to number
SIPP 677 53.5 IPP 815 64.4 SIPP and IPP 879 69.5 Total PSIC industries at 5 digit level 1,265 100.0 Sources: PSA, DTI, and DOF estimates, Total value-added by industries covered Value in trillion pesos Share to GDP, in percent SIPP 4.0 63.2 IPP 4.4 69.4 SIPP and IPP 4.4 69.4 Total GDP 6.3 100.0 Sources: PSA, DTI, and DOF estimates Note: value-added of covered industries were calculated based on the 2006 I-O table.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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A 3-year SIPP shall be formulated by BOI and approved by the President.
targeted list covering activities with significant positive externalities.
propose activities or projects not in the SIPP that may be granted tax incentives.
89
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. There has been little to no effort to do a regular CBA analysis on the part of IPAs. i. PEZA CBA methodology has double counting and does not show all the costs, like imports. ii. PEZA wants to commission its first “independent audit” in 2019 after decades of existence. iii. AFAB only completed a CBA in 2018, covering the periods 2015 to 2017. B. NEDA prepared a partial CBA as mandated by the TIMTA law but lacked data. C. The first comprehensive CBA was undertaken by the DOF in 2018. It shows that every peso spent on incentives generates 0.50 to 1.01 pesos in benefits. D. Under Package 2, the FIRB is tasked to regularly conduct CBAs.
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July 2, 2019
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Outcome Indicators Panel 2012/2015 2014 2015 Employment and compensation Total employment / total assets Total employment / total sales R&D employment / total employment Total compensation Total compensation / total expenses Average compensation to workers Total salaries / paid workers R&D =1 if establishment has R&D spending R&D expenses / total expenses Total investments / total assets Capital investments Land assets / total assets Total fixed assets / total assets Building assets / total assets Machineries / total assets Exports Direct exports / sales Productivity Average hours worked Sales / total employment Sales / paid workers
Note: Panel data used the 2012 CPBI and the 2015 ASPBI with the 2015 TIMTA Source: PSA, TIMTA, DOF estimates
93
= Registered firms performed significantly better than non- registered firms
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Summary of results of initial CBA analysis by DOF
94 Note: 2015-2017 averages
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Package 2 does not impose any new
income tax rate and makes the grant of incentives fairer and more accountable. B. Tax payment is a duty of every
entitlements but privileges that should be earned. If firms do not qualify for incentives, then they should pay the regular tax rates like everyone else.
95
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Fair and accountable tax incentives system
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A. The Philippines has the highest CIT rate among ASEAN at 30 percent. i. Indonesia is at 25 percent (proposals for lowering CIT to 20 percent are ongoing). ii. Malaysia is at 24 percent. iii. Lao PDR is at 24 percent. iv. Cambodia, Thailand, and Vietnam at 20 percent. v. Singapore has the lowest CIT at 17 percent. vi. CITIRA proposes to gradually reduce the CIT rate to 20 percent by 2029 to make us regionally more competitive. B. Lower CIT rates in the region means Philippine corporates will rather invest in our neighbors than in our
C. Lower corporate tax rates is associated with higher FDI intensity.
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Source: Asian Development Bank and PWC
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Country CIT revenues (percent of GDP) Headline CIT rate (percent) Revenue efficiency (percent) Vietnam 7.0 22 32.0 Malaysia 5.6 24 23.5 Thailand 4.0 20 20.0 Singapore 4.3 17 25.4 China 3.9 25 15.5 Philippines 3.8 30 12.6 Indonesia 2.6 25 10.4
Revenue efficiency is calculated as the ratio of tax revenue to GDP divided by the tax rate. Sources: OECD, and individual country statistics offices.
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Due to lower CIT rates elsewhere in the region, URC Philippines has expanded internationally, investing 66% of its total capital assets abroad.
Location Revenue1 Capital assets2 PHP billions Percent share PHP billions Percent share Philippines 84.6 66 33.5 34 Foreign 43.2 34 63.8 66
Note:
Source: 2018 audited financial statements 2018
3
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It operates in 6 of the biggest economies in ASEAN.
Note: All numbers contained in the boxes represent the regular CIT rate in the respective countries.
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Lower corporate tax rates is associated with higher FDI intensity.
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Net income taxation is desirable over GIE taxation. A. Equity GIE is unfavorable to those with high gross margins, such as service-oriented firms with virtually no cost
B. Simpler for tax authorities Tax officials need not scrutinize the proper classification of costs as direct or indirect. C. Less opportunity for transfer pricing abuse Using different tax bases for the reduced and regular corporate income tax regime complicates the tax system, thus creating more opportunities for tax arbitrage.
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Principles of taxation Gross income taxation
uniformity
incurred.
(Sec 2. 28(1), Article VI)
increasing their burden.
vigilant in scrutinizing the cost of goods sold declared because indirect costs can always be legitimized and claimed as direct business costs.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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1.
Export zones – leakages into domestic economy
2.
Regional investment incentives and enterprise zones – diverting activities to outside 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.
Churning or fictitious investments (lack of recapture rules)
6.
Schemes to accelerate income (or defer deductions) at the end of a tax holiday period
7.
Overvaluation of assets for depreciation, tax credit, or other purposes
8.
Employment and training credits – fictitious employees and phony training programs
9.
Domestic firms restructure as foreign investors
Source: Comparative Tax Policy and Administration program, Harvard Kennedy School
105
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A company under three tax regimes can shift costs among activities to minimize taxable income and thus tax liability.
Possible abusive allocation schemes to minimize tax:
regime.
and minimize tax payments.
and minimize tax payments.
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40 60 80 100 Exempt Special Regular Percent
Firm A – cost structure
Direct costs Indirect costs Net taxable income
Note: Based on cost structure of service firms
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regular to ITH regime to minimize income tax.
108
40 60 80 100 Exempt Special Regular Percent
Firm A – cost structure
Direct costs Indirect costs Net taxable income
Note: Based on cost structure of service firms
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ITH to the regular regime to minimize tax payments.
109
40 60 80 100 Exempt Special Regular Percent
Firm A – cost structure
Direct costs Indirect costs Net taxable income
Note: Based on cost structure of service firms
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regime to regular regime to claim such as deductions.
110
40 60 80 100 Exempt Special Regular Percent
Firm A – cost structure
Direct costs Indirect costs Net taxable income
Note: Based on cost structure of service firms
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regime to the 5% GIE regime to claim such as deductions.
111
40 60 80 100 Exempt Special Regular Percent
Firm A – cost structure
Direct costs Indirect costs Net taxable income
Note: Based on cost structure of service firms
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Below is the estimated tax foregone if: 1.Special and regular activities had the same cost structure as exempt activities, and 2.Regular activities had the same cost structure as special activities.
Estimated CIT foregone from potentially abusive transfer pricing in billion pesos 2011 2012 2013 2014 2015 2016 2017
Estimated leakage from Goods* 17.5 25.5 23.9 29.6 34.0 43.7 51.7 Exempt and special rate 3.0 3.7 2.9 3.0 6.9 8.1 10.3 Special and regular rate 14.5 21.8 21.1 26.6 27.1 35.6 41.4 Exempt and regular rate** 18.8 6.2 34.2 9.5 3.1 6.5 5.6 Services 8.4 10.9 11.2 10.4 8.6 8.8 11.4 Exempt and special rate 0.4 0.8 0.7 4.2 4.0 2.2 2.3 Special and regular rate 7.9 10.1 10.5 6.2 4.6 6.5 9.1 Exempt and regular rate** 7.9 6.2 7.1 10.7 9.9 17.9 18.9
Total 25.9 36.5 35.1 40.0 42.7 52.5 63.1
Sources: BIR, DOF staff estimates Notes: *Goods refer to manufacturing, and wholesale and retail trade. Services refer to all other industries. **Leakages from exempt and regular rates were not included in the total amount as they may result in double counting of leakages.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Nothing is free from heaven. B. All incentives are taken from the taxes of hard working taxpayers. C. Giving incentives indiscriminately means someone else, notably the poor, is deprived of social services. D. Far from the claim that we are killing the goose that lays the golden egg, we want to reform our current tax system so that the fattened goose may share its food with everyone else. E. Like previous reforms, for instance the liberalization of airlines and telecoms, the goose will soon realize that it will be much better off if everyone benefit.
113
I want to share my blessings.
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market, and to some extent, the Asian financial crisis, PAL decided to downsize its fleet from 54 to 14 and retrench 5,000 employees. This resulted in a monthly savings of PHP 24 million.
complaint against PAL’s decision on the grounds of unfair labor practice and illegal retrenchment. In 2008, the employees became victorious and PAL was charged of illegal dismissal after being unable to provide audited financial statements as proof that retrenchment is necessary.
aviation industry pie grew significantly post-liberalization of the aviation industry in the 1990s.
million passengers. On 2018, despite a lower market share from a base of 100 percent, PAL carried more than 9.3 million passengers, as the size of the overall market grew. PHP billions 2000 2014 2015 2016 2017 2018 Total revenues N/A 100 108 114 129 150 Total profits 0.4 0.1 5.8 4.1
Sources: Philippine Airlines and WSJ
5 10 15 20 25 Millions
Air transport, passengers carried
Source: WDI Note: Data include passengers of both domestic and international flights.
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Average operating profit margin (percent) Average net profit margin (percent) 1970 to 1986 21 15 1987 to 1995 20 25 1996 to 2012 22 16 1996 to 2012 (excluding 1998) 33 24 Source: Asian Survey Journal
Even with more competition, PLDT returns are generally higher than in any other period in history.
50 100 150 200 250 PHP billion
Telecommunications revenues
Sources: Securities and Exchange Commission (SEC)
20 40 60 80 100 Millions
Mobile phone subscriptions
Source: WDI
115
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116
A. We should look at the system from a larger country-level perspective, not the narrow industry or IPA level. B. We do not argue that most industries contribute positively to the economy. However, we cannot go on and on giving forever incentives left and right to a select few without the national interest in mind. C. The present incentive system benefits only 3,150 firms at the expense of the rest of taxpayers and the poor who are deprived of social services when money is not used for their benefit and instead pay the incentives of highly profitable firms. D. In 2017, income tax incentives amounted to PHP 127 billion but firms paid out dividends amounting to PHP 145 billion. One wonders if the incentives only made the shareholders richer, at the expense of the rest of the country.
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C. In 2017, we gave away PHP 441 billion in
D. Only 3,150 firms benefitted from the incentives. In contrast, there are around 90,000 firms that pay the regular CIT rate and 989,166 MSMEs that pay the regular rate, either CIT, PIT or will shift to CIT given the new sole-corp provision. E. The revenue foregone could have funded:
F. Package 2 is grounded on the four principles of good incentives: performance-based, time- bound, transparent, and targeted.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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In 2017, over PHP 441 billion (2.8% of GDP) was granted to 3,150 firms.
Source: DTI, TIMTA, and DOF estimates
PHP 441 billion in foregone revenue in 2017, many of which are unnecessary incentives.
1.
Firms with no incentives pay the regular rate of 30% of net taxable income.
2.
For example, almost all of the 90,000 SMEs pay the regular 30% rate.
3.
Firms with incentives pay between 6% and 13% effective tax.
In 2017, 989,166 registered firms. In addition, PHP 63 billion (0.4% of GDP) was lost due to possible abuse of transfer pricing.
Total: PHP 504 billion (3.2% of 2017 GDP)
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Type of tax 2015 Revenue foregone (in billion pesos) 2016 Revenue foregone (in billion pesos) 2017 Revenue foregone (in billion pesos) Income tax incentives 86.3 121.2 126.9 Income tax holiday 53.8 74.5 70.2 Special rate 32.5 46.7 56.7 Customs duties 18.1 57.4 46.5 Import VAT (gross) 159.8 202.1 267.7 Local VAT (gross) 37.0 TBC TBC Subtotal 301.2 380.7 441.1 Local business tax 1.6 1.0 TBC Possible leakage from transfer pricing abuse 42.7 52.5 63.1 Total 345.5 434.2 504.2
2015 to 2017 estimated foregone revenue due to tax incentives
PHP 441 billion in foregone revenue in 2017, many of which are unnecessary incentives.
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441 billion pesos of foregone revenues in 2017 could have funded… 33,000 public markets or 46,000 kilometers of roads or 130,000 daycare centers or 450,000 classrooms.
Source: DOF estimates
PHP 441 billion in foregone revenue in 2017, many of which are unnecessary incentives.
121
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Package 2 promotes a fair and accountable tax incentives system.
Every peso granted as tax incentive is a peso off the budget that could have been spent for infrastructure, health, education, and social protection that benefit all, and not only a few.
122
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Summary of how incentives system in ASEAN comply with the four principles
Country Performance-based Time-bound Targeted Transparent Philippines (Current) No monitoring of firm performance. 4 to 8 year ITH, 5% GIE forever
incentives outside of the tax code
industries. IPAs do not publicly disclose the firm names and amounts of incentives received Philippines (CITIRA) Chapter III Section 299 of the bill:
incentives.
incentives, other costs, and benefits. 5 to 19 years, renewable if they meet the criteria
(SIPP) will be formulated to prioritize incentives.
Chapter III Section 298 of the bill: The FIRB shall publish the names of the recipients of incentives and other related information on their costs and benefits. Indonesia Special rate and duration are dependent on investment amount (e.g. under USD 35 million, USD 35 to 70 million, over USD 70 million). 20 years ITH Based on main activities of the SEZ Not publicly available Malaysia Post-incentive reports are submitted to Malaysia Incentive Development Authority (e.g. percentage of local R&D expenditure to gross sales should be at least 1% on an annual basis). 5 years ITH Must engage in big data analytics, artificial intelligence, financial technology, internet of things, etc. and located in Cybercities. Not publicly available Singapore Companies receiving incentives must submit regular progress reports to Economic Development Board (e.g. employment created, total business expenditure which generates spin-off to the economy, etc.). 10 years ITH Pioneer companies in high technology Expanding companies (e.g. capital expenditure) Not publicly available Thailand Companies must submit regular reports to BOI Thailand (e.g. paid-up share capital at the required amount, adequate environment protection systems, debt-to-equity ratio not exceeding 3:1, etc.). 8 years ITH A1: Knowledge based A2: Infrastructure A3: high technology A4: lower technology B1 and B2: supporting industry Firm names of incentives recipients are disclosed on the BOI website. Vietnam Vietnam gives incentives to projects with a capital investment of at least USD 258.6 million and either
2 years ITH, 4 years special rate Category 1: socialization projects in difficult geographic areas Category 2: socialization projects in
Not publicly available 123
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124
A. In all SONA speeches of President Duterte, the tax reform has been mentioned as a priority measure, consistent with his commitment in the 10-point socioeconomic agenda. In fact, the 2016, 2018, and 2019 SONA mentioned Package 2 explicitly. B. In January 8, 2018, Package 2, co-presented by the DOF and DTI secretary, was unanimously approved in a cabinet meeting. DTI Secretary Ramon Lopez chairs PEZA, and PEZA is attached to DTI. C. This presidential and cabinet directive is the official position, nothing else. D. The DOF prefers to work together, adhere to the president’s directive and priorities, and not waste time
E. If others want war, they should at least be armed with the correct information.
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“When I ran for public office, I promised to do whatever it takes to give all Filipinos a comfortable life, even if it means fighting powerful
Congress to continue the job. Package 2 will lower corporate income taxes, especially for our small
create more jobs. More than 99 percent of our businesses are micro, small, or medium enterprises (MSME) and employ around 65 percent of
today and millions of jobs in the near future. Congressmen Cua, Gonzales, Abu, and Garin and Batocabe, as well as the Suansing family, filed versions of Package 2 last March 2018. Salamat po and I support their push to shepherd the bill. I hope the Senate will follow suit, maybe tomorrow, sir. This matter is urgent. Do not be part of the problem by ignoring it. I hope to sign Package 2 before the year ends. I urge Congress to pass it in a form that satisfies our goals and serves the interests of the many, not just the wealthy few.”
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Package 2 adheres to the four key principles of good tax incentive design: performance-based, time-bound, targeted, and transparent. Exempting PEZA would be a total contradiction of these shared principles. B. In fact, in the Feb 12, 2018 PEZA board meeting, DG Plaza agreed with the DOF’s position to make incentives performance-based, targeted, timebound, and transparent. C. Of the PHP 441 billion worth of tax discounts and exemptions given to investors in 2017, around 80% or PHP 345 billion was granted by PEZA. D. Based on DOF’s cost-benefit analysis, around half of these incentives performed well on behalf of the Filipino people. The other half did not perform well and would have actually benefited our country had they been invested in infrastructure, education, health care, and social protection programs.
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A. These are serious matters that should be substantiated so the DOF can understand better. If names are not given, and divestments are kept in secret, then these might be empty threats as investment pledges are increasing, contrary to their claim. B. The Philippines is fast growing country with low and stable inflation, solid external accounts, a young and dynamic labor force, and high English proficiency and interpersonal skills not found in neighboring countries. C. According to a 2017 World Economic Forum survey, granting of tax incentives is not the top nor the only reason why firms invest in the country. Firms invest when there is peace and order, better infrastructure, productive labor force, and ease in doing business.
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6.3 3.1 1.8 6.2 6.6 2.4 5.5 4.9
5.4 2.3 5.3 3.8 1.7 5.1 24 61 31 53 30 52 29 66 38 49
20 40 60 80 100
2 4 6 8 10 Real GDP growth (percent, left axis) Inflation rate (percent, left axis) Current account balance (percent of GDP, left axis) Median age (years, right axis) English proficiency (index, right axis) Years, index Percent PHL VIE INO MYS THA
Selected cross-country indicators, averages for 2010 to 2018
Sources: WDI, EF, CIA world factbook
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133
World Bank 2005 World Economic Forum 2017-18
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Progress in achieving the 10-point socioeconomic agenda is advancing strongly.
134
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CTRP – Package 2: Key concerns (as of 17 September 2019)
PEZA described itself as if it were “the evil three-headed dragon devouring money that should have gone to the people.” PEZA gave away P879.1 billion
A. PEZA and its predecessor, EPZA, have been giving incentives since 1972 or for 47 years already. In fact, 466 PEZA firms have been receiving incentives for more than 15 years, even if the firm does not generate enough additional jobs or
incentives has not been monitored for the longest
B. The PHP 879.1 billion which PEZA gave as tax incentives in 2015 to 2017 is revenue foregone. Since the granted incentives cannot be monitored in terms of performance, it will be difficult to ascertain if this money if being put to good use in the form of improved infrastructure and better social services. C. Over the longer-term, it is estimated that PEZA firms have received some PHP 5.5 trillion in tax incentives from 1995 to 2017.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
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There are 1,169 firms enjoying incentives for more than 10 years, 968 of which are PEZA locators.
1,169
Source: 2017 masterlist of registered enterprises, TIMTA
Time, in years Years AFAB BCDA BOI CDC CEZA PEZA PPMC SBMA Total 40-45 1972-1976 1 1 36-40 1977-1981 5 5 31-35 1982-1986 4 4 26-30 1987-1991 45 45 21-25 1992-1996 207 32 239 16-20 1997-2001 1 2 272 58 333 11-15 2002-2006 1 434 107 542 6-10 2007-2011 2 378 3 31 783 161 1,358 0-5 2012-2017 96 6 845 506 189 1,353 5 394 3,394 Total 98 6 1,225 511 220 3,104 5 752 5,921 136
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Summary of total tax incentives, per IPA (2015 – 2017, in millions)
Source: TIMTA data *Does not include local VAT exemption, only import VAT exemption
IPA Total Incentives (ITH, special rate, import and local VAT, duties) 2015 2016* 2017*
235,282.26 298,110.28 345,762.59
15,825.89 36,477.42 44,494.37
41,039.34 36,580.71 35,038.02
2,129.11 3,822.68 10,404.85
6,043.07 5,025.11 3,662.11
488.46 580.06 1,693.75
81.93 13.77 27.13
53.63 43.65 25.93
278.05 15.38 8.35
3.14 0.09
TOTAL 301,225 380,670 441,117
137
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PEZA
Year ITH Special rate Duty waived (in million pesos) Import VAT waived (in million pesos) Total (in million pesos) 1995 34,070 22,830 19,808 106,308 183,016 1996 35,077 23,504 20,394 109,450 188,425 1997 36,084 24,179 20,980 112,592 193,835 1998 37,091 24,854 21,565 115,735 199,245 1999 38,098 25,529 22,151 118,877 204,654 2000 39,105 26,204 22,736 122,019 210,064 2001 40,112 26,878 23,322 125,162 215,474 2002 41,119 27,553 23,907 128,304 220,884 2003 42,126 28,228 24,493 131,446 226,293 2004 43,133 28,903 25,078 134,589 231,703 2005 43,697 29,280 25,406 136,346 234,729 2006 44,260 29,658 25,733 138,104 237,755 2007 44,823 30,035 26,061 139,861 240,780 2008 45,386 30,413 26,388 141,619 243,806 2009 45,950 30,790 26,716 143,377 246,832 2010 46,513 31,168 27,043 145,134 249,858 2011 47,076 31,545 27,371 146,892 252,884 2012 51,112 34,249 29,717 159,485 274,564 2013 57,319 38,409 33,326 178,853 307,906 2014 44,162 29,592 25,676 137,799 237,230 2015 43,800 29,349 25,466 136,668 235,282 2016 55,469 37,169 32,250 173,079 297,966 2017 64,269 43,066 37,367 200,539 345,240 TOTAL 1,019,852 683,386 592,952 3,182,237 5,478,426 Average 44,341 29,712 25,781 138,358 238,192
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growth assumption (for easy explaining) using data points from the following:
data
1999 onward.
Estimating the tax incentives received by PEZA from 1995 to 2017
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consistently pictured in a negative and undesirable way. PEZA claims that these kinds of misleading information only seek to poison the minds of readers and gain public sympathy at the expense of PEZA and its investors.
A. The DOF has been clear that the problem is with the system. A system that lacks accountability, such as the preferential tax rate that PEZA grants forever, regardless of performance, will result in abuse and fail to encourage firms to innovate and export higher value-added products. B. In fact, the DOF has repeatedly acknowledged that these incentives have yielded some benefits in jobs created and investments in the domestic economy. C. What the Department wants is to modernize the incentives system and put it at par with ASEAN and even global standards.
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The DOF’s proposed solution is thus a change in the system. Package 2 will establish a single menu of superior incentives that are performance-based, time-bound, targeted, and transparent. Under the fair and more accountable incentive regime proposed under Package 2, companies that qualify for the superior incentives can include, among others, businesses or enterprises that invest in the countryside or outside the Philippines' highly urbanized areas; that create high quality jobs; and that invest in priority sectors identified in the Strategic Investments Priority Plan (SIPP) to be developed by the Board of Investments (BOI).
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A.The DOF is curious why PEZA is seemingly protecting the interest of big businesses and lobbyists rather than the government and the people.
subsidizing 3,150 large or foreign firms at the expense of the Filipino taxpayers and 989,166 MSMEs.
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benefit than cost. For every PHP 1 incentive, PHP 11 peso goes back to the economy through
firms are greater than the incentives provided by the
contributions were not acknowledged by DOF.
A. The results of the DOF analysis, which uses actual IPA submissions including PEZA’s, show that for every PHP 1 incentive that PEZA receives from the government, PHP 0.50 to PHP 1.01 goes back to the economy. B. DOF estimates that CIT paid by PEZA firms that availed of incentives in 2015, 2016 and 2017 at PHP 14.9, PHP 12.9 billion, and PHP 16.1 billion,
received were much higher at PHP 51.7, PHP 68.4 billion, and PHP 77.9 billion in 2015, 2016 and 2017, respectively.
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Summary of results of initial CBA analysis by DOF
145 Note: 2015-2017 averages
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Rank IPA 2015 (in million pesos) 2016 (in million pesos) 2017 (in million pesos) Income tax incentives Income tax payments Income tax incentives Income tax payments Income tax incentives Income tax payments 1 PEZA 51,720 14,836.34 68,359.45 12,849.56 77,854.55 16,079.50 2 BOI 28,686 24,601.28 34,223.36 31,428.54 33,531.08 37,283.35 3 CDC 2,458 1,083.53 15,318.04 3,351.16 12,187.36 3,673.02 4 SBMA 2,617 1,053.92 2,344.06 903.68 2,655.75 899.44 5 AFAB 176 54.2 384.21 15.75 466.4 15.61 6 CEZA 455 188.63 483.69 319.29 185.08 215.01 7 TIEZA 82 13.77
8 PPMC 53 24.09 40.27 13.79 25.93 14.6 9 ZCSEZA 9 2.46 15.38 3.31 7.62 2.88 10 BCDA 3
11 APECO
86,259 41,845 121,182 48,885 126,941 58,183
Source: TIMTA data *Does not include local VAT exemption, only import VAT exemption
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DOF during the bill drafting and was belatedly asked to participate in the deliberations. PEZA was also not given a chance by the President and the economic team to be heard. The economic team doesn’t listen to PEZA anymore.
A. Since 1995, DOF has attempted to reform fiscal incentives and has consulted PEZA multiple times. B. In the last three years, DOF consulted with PEZA in several
House version of the bill, and had further meetings during House Ways and Means deliberations. C. In fact, DOF responded to PEZA’s concerns officially.
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Attempts at fiscal incentives rationalization (House of Representatives)
1995-1998 1998-2001 2001-2004 2004-2007 2007-2010 2010-2013 2013-2016 2016 – June 2019
10th 11th 12th 13th 14th 15th 16th 17th
HB 76 (Acosta) RA 8424 HB 8395 (Lapus) Substituted by HB10596 HB 10596 (Lim) Approved on 3rd Reading. Transmitted to Senate HBs 188, 256, 386, 746, 5426, 5631, and 5732 Substituted by HB 6011 HB 6011 (De Venecia) Approved on 3rd Reading. Transmitted to Senate HBs 122, 271, 302, and 1599 Substituted by HB 3295 HB 3295 (Salceda) Approved on 3rd Reading. Transmitted to Senate HBs 1757, 2278, 2530 and 2712 Substituted by HB 5241 HB 5241 (Javier) Approved on 3rd Reading. Transmitted to Senate HBs 938, 3162, 4152 and 4402 Substituted by HB 4935 HB 4935 (Yap) Approved on 3rd Reading HB 130 (Villar) Pending in the Committee HB 302 (Yap) Pending in the Committee HB 1788 (Rodriguez) Pending in the Committee HB 2765 (Quisumbing) Pending in the Committee HB 4369 (Tambunting) Pending in the Committee CIT Only: HBs 36, 1537, 1658, 2379, 3835 & 5384 (Yap, Herrera-Dy, Angara-Castillo, Quimbo, Zubiri and Villafuerte Jr.) HB231 (Singson) HB3359 (Garin) HB7364 (Batocabe, Garin) HB7214 (Suansing, Estrellita, Horacio) HB7458 (Cua, Abu, Gonzales Jr.) HB 4081 (Tambunting) Pending in the Committee HB 4547 (Rodriguez, M., Jr.) Pending in the Committee HB 8080 (Biron) Pending in the Committee HB 8083 (Cua; Gonzales; Abu; Suansing, H.; Suansing, E.; et al) Approved on 3rd Reading. Transmitted to Senate
Source: House of the Representatives, Senate of the Philippines 151
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Attempts at fiscal incentives rationalization (Senate)
1995-1998 1998-2001 2001-2004 2004-2007 2007-2010 2010-2013 2013-2016 2016 – June 2019
10th 11th 12th 13th 14th 15th 16th 17th
SB 1396 (Recto) Pending in the Committee SB 1839 (Drilon, Flavier and Pangilinan) Substituted by SB 2411 SB 1910 (Biazon) Pending in the Committee SB 2411 (Villar Jr., M.; Drilon; Recto; Flavier; Pangilinan; Gordon) Pending 2nd Reading SB 1640 (Villar M.) Committee Report 784 Considered in HB 5241 SB 2375 (Legarda) Committee Report 784 Considered in HB 5241 SB 3136 (Lacson) Committee Report 784 Considered in HB 5241 SB 2142 (Recto) Pending in the Committee SB 2379 (Villar, M.) Pending in the Committee SB 2755 (Angara) Pending in the Committee SB 987 (Recto) Pending in the Committee SB 2048 (Legarda) Pending in the Committee SB 229 (Drilon) Pending in the Committee SB 798 (Recto) Pending in the Committee SB 1906 (Sotto III) Pending in the Committee CIT only: SB 1204 (Binay), SB 698 (Aquino), SB 317 (Angara), SB 125 (Zubiri)
Source: House of the Representatives, Senate of the Philippines 152
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Package 2 does not remove the
such as PEZA and BOI. They will continue to promote and facilitate trade and investment and ensure ease of doing business in relation to investors’ transactions with various government agencies. Also, local business tax is still part of the proposed incentive package while real property tax is largely paid by developers that do not receive incentives.
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A. PEZA does not have the sole duty to promote the development of SMEs. B. CITIRA proposes to lower the CIT rate to 20 by 2029. This will benefit around 989,166 MSMEs that pay the current rate of 30 percent. C. Moreover, the EODB enacted into law in 2018 makes it easier for small businesses to process requirements. D. Package 2 grants additional incentives to firms that buy local inputs. This will develop the MSME supply chain.
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In 2017, over PHP 441 billion (2.8% of GDP) was granted to 3,150 firms.
Source: DTI, TIMTA, and DOF estimates
Around 90,000 SMEs will benefit from the lowering
1.
Firms with no incentives pay the regular rate of 30% of net taxable income.
2.
For example, almost all of the 90,000 SMEs pay the regular 30% rate.
3.
Firms with incentives pay between 6% and 13% effective tax.
In 2017, 989,166 registered firms. In addition, PHP 63 billion (0.4% of GDP) was lost due to possible abuse of transfer pricing. Total: PHP 504 billion (3.2% of 2017 GDP)
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Ease of doing business
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A. This is not accurate as most ecozones are in NCR and other highly urbanized cities or
the 2,779 PEZA registered firms in 2016, 1,275 of these are located in NCR. This does not yet include PEZA registered firms in located in the Greater Manila Area. B. As of December 2018, 223 out of 544 ecozones are located in Metro Manila. C. Therefore, the claim that PEZA is creating jobs, livelihood, income for Filipinos in the countryside is not entirely accurate. D. Further, the proposed CITIRA comes with additional incentives for locators outside Metro Manila and its adjacent areas.
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Source: PEZA, IPAs, and DOF staff calculations
IPA
AFAB 1 APECO 1 BCDA
1 CEZA 1 PEZA 531 PIA 1 PPMC 1 TIEZA 5 SBMA 1 RBOI-ARMM
1 TOTAL 544
As of 2018, there are 544 ecozones, all of them are separate customs territory, meaning they are exempt from all taxes. Moreover, 223 or 41 percent of these ecozones are in Metro Manila alone.
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Chile Thailand Indonesia
Source: Individual country investment promotion offices. 159
Closest economic zone to each country’s capital Capital Economic zone Distance, in kilometers Jakarta (Indonesia) Tan Jung Lesung 181km Bangkok (Thailand) Sa Kaeo 197km Santiago (Chile)
Free Zone of Punta Arenas
3,022km
Notes: Distances were estimated using Google Maps and the location of the capital is denoted by .
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1.
Additional 3 years of incentives for:
A.
Registered activities relocating outside Metro Manila and selected urbanized areas adjacent to Metro Manila
B.
Agribusiness projects of registered enterprises located outside Metro Manila and urban areas
C.
Projects located in less developed areas or those recovering from armed conflict or a major disaster
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CTRP – Package 2: Key concerns (as of 17 September 2019)
A. Today, the supply chain is still shallow despite generous incentives, and most PEZA firms still rely on imported parts and put little value added in the assembly stage before exporting. Hardly any local supplier system was created. For instance, according to latest data from PEZA, around 72 percent of their total exports is made up of imports, suggesting low value-added to the local economy. B. The proposed CITIRA also incentivizes the development of the local value chain by providing additional 50 percent deductions to domestic inputs.
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Year Export sales (in USD millions) Total Importation (in USD millions) Net exports (in USD millions) Imports to exports ratio Net exports to exports ratio
1995 4,284.60 2,532.33 1,752.27 59.10 40.90 1996 6,500.38 3,861.58 2,638.79 59.41 40.59 1997 10,626.30 6,877.99 3,748.31 64.73 35.27 1998 13,269.75 9,699.07 3,570.68 73.09 26.91 1999 15,809.00 9,644.22 6,164.78 61.00 39.00 2000 20,025.06 12,125.12 7,899.94 60.55 39.45 2001 19,498.38 12,588.58 6,909.80 64.56 35.44 2002 22,775.83 13,427.69 9,348.15 58.96 41.04 2003 27,313.21 17,483.27 9,829.94 64.01 35.99 2004 30,924.09 17,825.65 13,098.44 57.64 42.36 2005 32,029.72 15,415.56 16,614.16 48.13 51.87 2006 36,077.70 29,023.50 7,054.20 80.45 19.55
Source: PEZA submission
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CTRP – Package 2: Key concerns (as of 17 September 2019) Year Export sales (in USD millions) Total Importation (in USD millions) Net exports (in USD millions) Imports to exports ratio Net exports to exports ratio
2007 40,889.12 33,504.04 7,385.08 81.94 18.06 2008 40,543.91 31,413.69 9,130.23 77.48 22.52 2009 32,897.47 23,213.03 9,684.44 70.56 29.44 2010 40,473.64 37,440.81 3,032.83 92.51 7.49 2011 42,144.38 34,524.31 7,620.07 81.92 18.08 2012 40,023.56 32,590.75 7,432.81 81.43 18.57 2013 42,872.73 29,831.37 13,041.36 69.58 30.42 2014 44,034.29 35,618.41 8,415.87 80.89 19.11 2015 43,970.69 32,322.46 11,648.23 73.51 26.49 2016 47,926.72 30,256.67 17,670.04 63.13 36.87 2017 51,349.81 39,787.68 11,562.13 77.48 22.52 2018 54,220.70 34,168.14 20,052.56 63.02 36.98 Average (24 years) 31,686.71 22,715.66 8,971.05 69.38 30.62
Source: PEZA submission
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CTRP – Package 2: Key concerns (as of 17 September 2019) Source: PEZA submission
2,532 3,862 6,878 9,699 9,644 12,125 12,589 13,428 17,483 17,826 15,416 29,024 33,504 31,414 23,213 37,441 34,524 32,591 29,831 35,618 32,322 30,257 39,788 1,752 2,639 3,748 3,571 6,165 7,900 6,910 9,348 9,830 13,098 16,614 7,054 7,385 9,130 9,684 3,033 7,620 7,433 13,041 8,416 11,648 17,670 11,562
20,000 30,000 40,000 50,000 60,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Exports of PEZA
Import component (in USD millions) Net exports (in USD millions) 164
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CTRP – Package 2: Key concerns (as of 17 September 2019)
Composition of PEZA exports
Note: Services exports in PEZA based on BPO revenues per TIMTA Source: PEZA submission to DOF and TIMTA 2015-2017
32,322 30,257 39,788 3,490 6,291
(5,000.00)
10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 40,000.00 45,000.00 2015 2016 2017
Goods exports
Import component (in USD millions) Goods net export (in USD millions)
32,322 30,257 39,788 11,648 17,670 11,562
20,000 30,000 40,000 50,000 60,000 2015 2016 2017
Goods and services exports
Import component (in USD millions) Net exports (in USD millions)
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A. The method of cost-benefit analysis used by PEZA to obtain the PHP 10.05 trillion amount is not correct. To get the PHP 10 trillion number, PEZA added up the total of exports, investment, and capital equipment, and raw materials, which are from the expenditure side; and wages and taxes, which are from the income
counted and ultimately bloated their contribution to the economy.
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B. PEZA also used incomplete cost data. C. PEZA cite its supposed benefits, the bulk of which are exports, it does not mention that its imports are almost as high as exports. Data submitted by PEZA to DOF shows that their total exports contain on average 72 percent imported inputs from 2015 to 2017. High import-dependency further suggests that export industries under PEZA have not encouraged the development of backward linkages.
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PEZA DOF Demand Supply
in PHP trillion in percent of total claim in PHP trillion in PHP trillion
Exports 7.0 70.0 6.9 Imports 0.0 0.0
Local purchases of capital equipment and raw materials* 0.8 7.6 0.8* Investment 0.8 7.5 0.8 Wages 1.3 12.5 1.3 Taxes Paid 0.3 2.7 0.3 Total 10.05 100 2.8 1.5
CTRP – Package 2: Key concerns (as of 17 September 2019)
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