By Joann Villanueva
MANILA — Finance Secretary Carlos Dominguez III has discounted flight of investments from China vis-à-vis the proposed reform on fiscal incentives.
In an interview after his speech at The Asset forum in Taguig City Tuesday, the Finance chief said foreign investors do not consider incentives as the primary factor in their decision to locate to a certain country.
On top of the list is the stability of policy while other factors include fairness of the legal system, the safety of personnel, improvements in infrastructure, lower cost, and incentives.
“This is substantiated by a lot of studies that have been made by World Bank (and) ADB (Asian Development Bank) that incentives play a role but they are not the only role that will determine the investments,” he said.
Department of Finance (DOF) officials have been pushing for tax incentives reforms after noting that incentives that have been given to companies in the past have become disadvantageous to the government.
The proposed reform, dubbed as the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, aims to correct the current system that incentivizes more than one-third of the economy since covered companies are considered as part of priority industries.
Under this measure, incentives will only be given to industries that deserve it since it will be performance-based, targeted, time-bound and transparent.
Tax holidays are also proposed to be given to deserving companies at maximum of up to five years for those located in the National Capital Region (NCR); up to seven years for those located in Rizal, Laguna, Cavite and Bulacan; and up to 10 years for those located in other parts of the country.
DOF, in a statement earlier, said that in 2017 alone, the government extended PHP441 billion worth of incentives to 3,150 companies. This amount accounts for about 2.8 percent of domestic output.
CITIRA also aims to reduce corporate income tax (CIT) from 30 percent to 20 percent gradually for a period of 10 years.
Asked by forum delegates if authorities can shorten the period of CIT reduction, Dominguez said they cannot fast track this because it will result in bloating of the budget deficit.
“I agree that it’s a long period but we have a choice here. I mean governance and management are always (about) making choice. If we drop the rates too quickly, we are going to balloon our deficit and ballooning our deficit is going to probably mean a credit downgrade,” he added.
He said a credit downgrade will be detrimental to interest rates and will have an overall impact on the economy.
“The ideal situation is to keep our deficit in check to around 3.2 percent (of gross domestic product) and we will do it as fast as we can — reducing taxes if we can, offset it against other benefits, other exemptions, other tax exemptions that we are giving,” he added. (PNA)