Withdraw tax incentives to foreign investors, gov’t urged

MANILA — Amid calls for additional revenue measures to address the country’s budget deficit, Ibon Foundation has called on the new administration to look into alternative fiscal solutions instead of resorting to new taxes.

Finance Undersecretary Gil Beltran recently announced his proposal of raising cigarette taxes and the excise tax on oil products.

Beltran also cited four new tax measures that the new Congress can work on immediately that could raise an estimated P67 billion in revenues. He said that the excise tax reforms for tobacco, alcohol and petroleum products could generate as much as P40 billion; the rationalization of fiscal incentives, another P10 billion; the simplified net income taxation scheme (P5 billion); and the packaged increase in the value-added tax (VAT) rate and lowering of the income tax, at least P12 billion.

A group of economists from the University of the Philippines Open University and business groups are also supportive of the excise tax reform on tobacco and alcohol products. The groups said the imposition of new tax measures can only be “stalled” but they cannot be “avoided.”

But Ibon Foundation proposed alternative solutions including the implementation of increases in tariffs and withdrawal of huge incentives given to foreign investors. The independent think-tank estimates that government loses around P200 billion in potential revenues each year because of tariff reduction. It cited that revenues lost to the Japan Economic Partnership Agreement (JPEPA), which was ratified in 2008, were estimated at P12.5 billion in 2009.

According to Ibon, the fiscal incentives given to foreign investors have led to huge tax losses– government estimates revenue losses from fiscal incentives at around P43 billion.

The group said the government can raise its customs collections by increasing the tariff levels of agricultural and industrial imports that have been liberalized. Since 1996 (after World Trade Organization agreements came into force), the Bureau of Customs (BOC) tax to GDP (gross domestic product) ratio has decreased from 4.8 percent to 2.9 percent in 2009.

The group also called on the Aquino administration to restore the corporate income tax to 35 percent, before it was reduced to 30 percent in 2008. This will also contribute to additional revenues for the government. A study estimates that revenues lost from the corporate tax cut amounts to almost P16 billion.

Ibon added that another doable measure to improve the country’s revenues is to plug the leakages in the tax collection system. Estimates from the Department of Finance (DOF) show that uncollected revenues from interest income tax, documentary stamp tax, gross receipt tax, excise tax on tobacco products, value added tax, individual and corporate income tax reach more than P170 billion.

According to Ibon, if government recovers these potential revenues, it would translate to around P429 billion—more than enough to cover the government deficit target of P300 billion in 2010.

The administration should also review the government’s debt management, and pursue effective anti-smuggling and anti-corruption efforts to address the country’s fiscal problems, the research group added. (PinoyPress)