JFC seeks serious government review of investment rules

By Riza Lozada

Foreign trade groups are seeking a serious government review of the Omnibus Investment Code, particularly on ways to relax foreign-ownership rules outside of the Constitution; and the policy to limit tax incentives granted to new projects.

The Joint Foreign Chambers of the Philippines (JFC) said it was “unaware of any comprehensive list, let alone a serious review for contemporary relevance of the many 60-40 restrictions scattered throughout Philippine laws.”

Last week, the Board of Investments (BOI) released the guidelines for the 2014-2016 Investment Promotions Plan (IPP) that focused on industries providing inclusive growth and job creation.

The listed preferred activities under the IPP include aerospace, paper, copper wires, tools and die, sugar mills, integrated circuits and energy projects.

The new IPP covers business start ups in business-process outsourcing and knowledge outsource processing sectors.

To improve business competitiveness in the country, the JFC said a thorough review of tax-perks policy should also be made.

“The BOI has started reviewing the Implementing Rules and Regulations or the Omnibus Investments Code of 1987 to refine the criteria that govern the grant of tax incentives to investors and industries as the BOI tries to craft a more focused and longer term Investment Priorities Plan. No study or review of all 60-40 restrictions in various laws has taken place in the government,” the group, which is made up of the biggest foreign chambers in the country, said.

The legislative branch recently pledged to review mining laws to introduce straightforward fiscal regime and revenue arrangement between the government and mining contractors.

This assurance was made by Senate President Franklin Drilon when he spoke recently before the JFC. He said the Senate would review and “possibly enact” the proposed Rationalization of Mining Revenues. “The Senate would be taking into consideration the role of the government as owner of the minerals and the impacts of mining activities on the environment and the community,” Drilon said.

Finance Secretary Cesar Purisima supports the move to implement transparency in the grant of tax incentives.

“This lack of information is troubling. The government has a very limited capacity to know if it is granting the right amount of incentives to the right places to achieve its economic goals. We are currently living in an age where data and information are premium commodities for effective decision-making, and yet our current system forces us to blindly grant tax incentives to investors without understanding their full economic impact,” Purisima said.

He urged Congress to pass House Bill 2492 authored by Rep. Leni Robredo pushing for the Tax Incentives Management and Transparency Act (Timta) that would create a Tax Expenditure Account (TEA) in the national budget.

The tax incentives are largely unknown and without updating monitoring systems, the government could not properly calibrate its decisions to optimize economic growth potentials, Finance Undersecretary Jeremias Paul Jr. said. The TEA will list all tax incentives given by investment promotion agencies (IPAs) and other agencies.

The IPAs will then submit to the Department of Budget and Management (DBM) their respective annual projected amount of tax expenditures for the succeeding three years.

“The proposed Timta is consistent with international best practices, as OECD members like the United States, as well as a number of developing countries such as India, Thailand, Brazil, and Argentina annually report measures of tax expenditures in their budget to enhance transparency and inform policy debates,” according to the Department of Finance.

Drilon, in addressing the concerns of foreign chambers, said he would support the proposed Timta bill to improve transparency and accountability in granting tax incentives.

“The bill will establish the monitoring of tax incentives granted by law to business entities and qualified private individuals and corporations as administered by the investment promotion agencies (IPAs) and other government agencies to improve transparency with respect to such incentives,” Drilon said.

“Its key provisions proposed for the creation of a tax incentive information section in the annual budget of expenditure and sources of financing or DESF. It will not be in the General Appropriations Act, and the information there is administered by the investment promotion agencies,” he added.

Drilon said that in 2012, the actual tax expenditures as a result of the incentives granted by the IPAs amounted to P159.885 billion.

“Again it was just for reporting requirement for the purposes of transparency. In 2013 the expected tax expenditures amounted to P160 billion.

In 2014 it was 164.5 billion,” according to Drilon. “Again, nothing in this law will diminish the incentives being given by the IPAs pursuant to their chapter or existing laws.

It is nothing more than a transparency provision,” the senator added.