ctrp ppt v2 kp4 mb - iro.ph ppt v2 kp4 mb.pdf · draft for discussion. subject to change. in...
TRANSCRIPT
DRAFTFORDISCUSSION.SUBJECTTOCHANGE.
Comprehensive tax reform programAsofNovember16,2018 2:55PM
DRAFTFORDISCUSSION.SUBJECTTOCHANGE.
16November2018 DEPARTMENT OF FINANCE 1
Package 1: TRAIN
Package 1B:Tax amnesty and
motor vehicle user charge
(MVUC)
Package 1A: Personal income tax, consumption tax, and
transaction taxesTRAIN (RA 10963)
Package 2: TRABAHO
Package 2+:Alcohol and tobacco
excise tax, and mining tax
Corporate income tax and fiscal
incentives
Personal income tax and
consumption tax
Comprehensive Tax Reform ProgramDRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Package 3
Property valuation and taxes
Capital income and financial taxes
Package 4
Comprehensive Tax Reform ProgramDRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Package 2Corporate income tax and
incentives reform
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Source: Asian Development Bank and PWC
The Philippines has the highest corporate income tax rate in the ASEAN region.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Source: OECD, individual country statistics offices, and DOF staff calculations.
CIT revenue is increasing, but efficiency is very low.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
- 14 IPAs - 136 investment
laws 200 non-investment laws
- 546 ‘ecozones’ and freeports
We grant the most generous fiscal incentives since they are in lieu of all taxes and given forever.
Source: Individual country finance agencies and investment promotion offices.
We have a complex tax incentives system.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
14 Investment Promotion Agencies (IPAs)
We have a complex tax incentives system
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Source: PEZA, IPAs, and DOF staff calculations
IPA No. of ecozones
AFAB 1
APECO 1
BCDA 1
BOI -
CDC 1
CEZA 1
PEZA 528
PIA 1
PPMC 1
PRA -
TIEZA 8
SBMA 1
RBOI-ARMM 1
ZCSEZA 1
TOTAL 546
We have a complex tax incentives system
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
● Firms with no incentives pay the regular rate of 30% of net taxable income
● Firms with incentives pay between 6% and 13%
For example, almost all of the 90,000 SMEs pay the regular 30% rate.
Source: DTI and TIMTA
Huge inequity under the current system:
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Tax incentives in billion pesos
Type of tax
Income tax
Customs duties
Subtotal
Import VAT (gross)
Local VAT (gross)
Local business tax
Subtotal for incentives
Leakage
Total
No. of recipients
2015
86
18
104
160
37
TBD
301
43
344
2,844
2016
121
57
179
TBD
TBD
TBD
TBD
TBD
TBD
3,102
Source: TIMTA, DOF estimates
Estimated forgonerevenue due to tax incentives
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
FDI pales in comparison to our neighbors.
Source: BSP, UNCTAD, and DOF calculations
Despite giving the most generous and forever incentives…
Draftfordiscussion.Subjecttochange.Draftfordiscussion.Subjecttochange.
DEPARTMENT OF FINANCE 110
At the aggregate, FDI reached record highs in recent years despite declining approved foreign investments.
Draftfordiscussion.Subjecttochange.Draftfordiscussion.Subjecttochange.
DEPARTMENT OF FINANCE 111
Historically, PEZA attracted the most foreign investments, followed by the BOI.
Draftfordiscussion.Subjecttochange.Draftfordiscussion.Subjecttochange.
DEPARTMENT OF FINANCE 112
First quarter approved investments generally peak during election years.
145 6
119
32
64
18 21
4
47
22 19
50
37
2226 23
14
0
20
40
60
80
100
120
140PH
Pbillion
sApprovedforeigninvestmentsinQ1
Source:PSANote:Purple barsrepresentelectionyears.
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Export competitiveness has been in decline.
Domestic industries have weak linkages to export industry.
Reliance on imported parts, thus weak domestic content.
Source: PSA, UNCTAD, DOF calculations
Despite giving the most generous and forever incentives…
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Cost-benefit analysis of fiscal incentives
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
This is done so that we can determine if the tax incentives given to recipients benefit our economy more than it costs.Note: Evaluation of the past performance does not necessarily indicate future priority or preference over some industries.
“Ex-post” cost-benefit analysis
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Efficiency Equity Simplicity
However, incentives may be justified if they provide net benefit to society as a whole.
Tax incentives usually violate the principles of:
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
1. Estimating implicit labor subsidyWhat is the cost for each job created?
3. Estimating net government revenue Do we generate more revenue from the tax we forego?
2. Performing a counterfactual analysisDo firms with registered activities for incentives perform better in terms of job creation, R&D investments, productivity, etc. when compared to non-registered firms?
4. Accounting of direct and indirect cost and benefitDo total benefits from incentives, both private and social, outweigh total costs?
Cost-benefit analysis: Methods
In 2015, to create 1 job, it costs taxpayers around P2.4 million.Note: In 2015, 123,725 jobs were created, and the total tax expenditure was P301 billion. If this is adjusted for VAT refund,
the implicit labor subsidy would be P1.4 million.
Source: IPA submissions, TIMTA, DOF estimates.
P2,434,662
Result #1(Implicit labor subsidy)
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
In general, registered firms, when compared to non-registered firms…
● Have the same employment relative to size● Have similar average wages, but pay top management higher● Spend more on fixed assets, but do not spend higher on R&D● Have the same level of exports relative to sales● No difference in productivity Source: PSA ASPBI, TIMTA, DOF estimates
Result #2(Counterfactual analysis using propensity score matching)
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
On average, for every peso we grant as incentive, we collect 34 cents in taxes, even after accounting for taxes from indirect employment and domestic inputs.
If taxes from unnecessary incentives are accounted for, we collect 95 cents.
Taxes collected from:FirmsEmployeesDividends
Indirect employeesDomestic inputs
Tax incentives on:IncomeDuties (30%)VAT (net of refund)Local taxes
Source: IPA submissions, SEC, TIMTA, DOF estimates
Result #3(Net government revenue effect)
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Identifying necessary and unnecessary incentives
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Number of firms enjoying incentives for at least 15 years
645 firms receiving incentives for at least 15 years.
Source: TIMTA.
We have been supporting many firms unnecessarily
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Source: SEC, TIMTA
Dividends declared at 164% of income tax incentives received
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
On average, for every peso spent on incentive, between P0.63 and P1.21 comes back in benefits, even after
accounting for employment generated and spillovers, both direct and indirect.
Source: IPA submission, PSA ASPBI, SEC, TIMTA, DOF estimates
Result #4(Accounting of total direct and indirect cost and benefit)
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
TRABAHO BillTax Reform for Attracting Better and
High-quality Opportunities bill(HB 8083)
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
The President may advance the scheduled
reduction in the CIT rate when adequate savings
are realized from the rationalization of fiscal
incentives.
Lower corporate income tax
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Fair and accountable tax incentives systemEvery 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.
Package 2
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Special rate (2019)18% on net taxable income after ITH for up to 5 years including the ITH
- 1.5% to province- 1.5% to municipality
Income tax holidayUp to 3 years plus 1 year extension if investing in agribusiness, or in less developed areas, or
if relocating outside Metro Manila and adjacent urban areas
Incentives menu
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
• Depreciation allowance of qualified capital expenditure:
• 10% for buildings• 20% for machineries
• Additional deduction of up to:• 100% for research and development
(R&D) and training• 50% for labor expense• 100% for country-wide infrastructure
development• 50% for reinvestment allowance to
manufacturing industry• 50% for domestic input expense
• Enhanced net operating loss carry-over (NOLCO) (5 years)
• Exemption from customs duty on imported capital equipment and raw materials
141
Incentives menu
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
• Additional 2 years of incentives for:• registered activities relocating outside
Metro Manila and selected urbanized areas adjacent to Metro Manila
• agribusiness projects of registered enterprises located outside Metro Manila and urban areas
• projects located in less developed areas or those recovering from armed conflict or a major disaster
• VAT incentives to registered enterprises whose export meet the 90% of sales threshold, and are within an ecozone or free port:
• VAT exemption on importation• VAT zero rating on domestic purchases
Incentives menu
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
For RBEs which availed of ITH: Continue until remaining period ends or for a period of 5 years, whichever comes first
For RBEs enjoying existing 5% GIE:
Sunset provision for existing incentives
DRAFTFORDISCUSSION.SUBJECTTOCHANGE.
Summary results (ETRs)
16November2018 DEPARTMENT OF FINANCE 144
CurrentA(ITH/GIEand
RCIT)
CurrentB(GIEandRCIT)
Case1(TRABAHO)
Case2(TRABAHO)
Case3(Regular)
Case4(2029regular)
Taxrate(registeredactivity) 0/5
5(ITHconvertedto
GIE)12.5+3 25withadditional
deductions 25 20
Company1 0.0 1.9 3.6 0.0 5.8 4.6
Company2 1.1 1.1 3.3 1.2 5.2 4.2
DRAFT FOR DISCUSSION. SUBJECT TO CHANGE.
Granting tax incentives is not the only way to
directly help firms
The government can use more efficient and targeted subsidies
The real solution in the medium-term is to address
infrastructure gaps, corruption, inefficiency in government, and complex
business regulations
Ex. lifeline subsidies, power subsidies, housing vouchers, skills training, etc.
There are other and may be better ways to support firms
DRAFTFORDISCUSSION.SUBJECTTOCHANGE.
Tax reform as bridging the future
16November2018 DEPARTMENT OF FINANCE 200
Source:https://www.pinterest.com/explore/social-stratification/
DRAFTFORDISCUSSION.SUBJECTTOCHANGE.
16November2018 DEPARTMENT OF FINANCE 201
Source:https://scottdeutschtalks.files.wordpress.com/2016/05/who-wants-change.jpg
DRAFTFORDISCUSSION.SUBJECTTOCHANGE.
Let’s be partners for change!• Formoreinformation,pleasevisit:
• Forquestions:[email protected] DEPARTMENT OF FINANCE 202
www.dof.gov.ph/taxreform/ facebook.com/DOFph