Many IPA-registered firms getting unnecessary perks
More than half of firms registered with investment promotions agencies (IPAs) are receiving unnecessary fiscal perks, the Finance department said on Monday.
Citing a department study, Finance Undersecretary Karl Kendrick Chua said in a statement that 57 percent of IPA-registered firms”are receiving incentives that are already unnecessary or redundant.”
Only 43 percent of these firms “are worthy of being granted incentives,” he added without providing the total number of registered companies.
A draft Finance department presentation posted in its website, meanwhile, showed that there were 915,000 registered firms with 14 IPAs as of 2015. Based on a cost-benefit analysis over P301 billion in incentives was granted to 2,844 firms.
”[O]ur question is, why are we supporting certain firms if they are inherently profitable and they pay even more dividends than the incentives they receive?,” Chua asked.
“[W]e gave away in 2015 P86 billion in income tax incentives,” Chua said.
“But the firms receiving these incentives combined take dividends of P83 billion more than the incentives they get,” he added.
The Finance department, Chua said, has settled on three main factors to determine if incentives are necessary.
“These factors are the length of the availment of incentives, to find out whether a firm has been receiving incentives for more than 15 years; profitability, to verify whether the firm is inherently profitable or not and whether it is already earning three times the median of the industry it belongs to; and the motivation to invest, to find out why they chose to relocate here,” he added.
The department said it had found out that 645 registered firms had been receiving incentives for at least 15 years.
Modifying tax incentives to make these “performance-based, targeted, time-bound and transparent” is part of the proposed Package 2 of the Duterte administration’s Comprehensive Tax Reform Program.
Package 2, submitted to Congress in January, also proposes to gradually lower the country’s corporate income tax rate — said to be among the highest in the region — to 25 percent from 30 percent.
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