Submit a critique paper relative to the ‘recommendation’ part of the file.
You
are to state whether or not you are amenable to it or not.
You may also suggest other recommendations not provided for in the
recommendation. See law, or jurisprudence.
A Critique on Tax Incentives and Exemptions
The tax incentives available to investors comprised of either availing
through registration under the Board of Investment, special economic zone
or under the Philippine Economic Zone Authority (PEZA). This can be done
by registering under the appropriate entities complying with voluminous
documentary requirements. The rule on tax incentives is quite complex as
presented in the narrative report but they can be summarized as follows:
1. Income Tax Holiday-this pertains to a period of tax exemption of an
entity under special law which usually commence from its registration
until the lapse of the period provided for the law.
2. Special Corporate Tax Rate-this rate of 5% (of gross income) shall be
the applicable rate in lieu of other taxes such as income tax (usually
from 10% to 32%) and business taxes (VAT of 12%).
3. Enhanced Deduction-the allowable deductions to be deducted to
arrive at taxable income is increased by 50% to 100% above the actual
expense deduction. And any taxable income shall be taxed at a
corporate income tax of 20%.
With these, the author came up with the following recommendations:
a. Policymakers can also consider stricter implementation of the grant
and monitoring of income tax incentives to reduce waived taxes for
the Philippines by implementing a more stringent and narrower list of
eligible activities for tax incentives under the SIPP.
b. Stricter guidelines may also be established by the BIR for monitoring
tax incentives by limiting or strictly interpreting the qualified
additional deductible expenses for Enhanced Deductions.
c. Other tools which may be employed to attract investments that are not
tied to income tax incentives include a range of incentives such as tax
credits, grants, loans, workforce training program, and other forms of
financial assistance.
I partly agree on the recommendation that Policymakers can also consider
stricter implementation of the grant and monitoring of income tax incentives
to reduce waived taxes for the Philippines by implementing a more stringent
and narrower list of eligible activities for tax incentives under the Strategic
Investment Priorities Plan (SIPP). Yes, I agree on stricter implementation of
tax laws granting tax incentives. However, I do not agree on narrowing
down the list of eligible activities. Be it noted that the said list was already
provided by law, with the intent of attracting investors, especially foreign
ones, to be competitive with other countries whose corporate taxes are lower
than the Philippines. There is an equilibrium that has to be maintained
between the taxes the government has to forego and the return in investment
that would be generated in granting tax incentives to the eligible ones. This
can be deduced from the Section 2 (b) of RA No. 11534 (CREATE Law)
which states that:
“SEC. 2. Declaration of Policy. — It is hereby declared the
policy of the State to develop the national economy towards
global competitiveness by implementing tax policies
instrumental in attracting investments, which will result in
productivity enhancement, employment generation, countrywide
development, and a more inclusive economic growth, while at
the same time maintaining fiscal prudence and stability.
To achieve these objectives, the State shall:
(b) Develop, subject to the provisions of this Act, a more
responsive and globally-competitive tax incentives regime that is
performance-based, targeted, time-bound, and transparent; …”
Narrowing down the list would be contradictory to the intendment of
CREATE Law as mentioned above. Hence, I do not agree on narrowing
down the list of eligible activities which are eligible for tax incentives.
On the other extreme, I agree with the recommendation of stricter guidelines
to be established by the BIR for monitoring tax incentives by limiting or
strictly interpreting the qualified additional deductible expenses for
Enhanced Deductions. The reason for such agreement is anchored on
possibility that this type of tax incentive may be probe to abuse by
taxpayers. This can be done by overstating in accounting the actual expenses
deductible against the income to come up with the taxable income. Here, we
apply the rule laid down in MCIIAA v. Marcos, G.R. No. 120082 September
11, 199, wo wit:
“Statutes granting tax exemptions are construed in strictissimi
juris against the taxpayers and liberally in favor of the taxing
authority”
The above jurisprudence should be the guiding principle of the BIR in
implementing the Enhanced Deduction tax incentives. Since we are talking
about a deduction which amount may double than the actual expenses
incurred by the taxpayers, it may be subject to abuse, especially that we still
rely on faithful representation in tax our tax return preparation. Thus, I agree
with the recommendation of stricter guidelines in the implementation of
enhanced deduction incentive.
Lastly, I agree on the recommendation that other tools which may be
employed to attract investments that are not tied to income tax incentives
include a range of incentives such as tax credits, grants, loans, workforce
training program, and other forms of financial assistance. Despite the
favored view on this recommendation, resorting to tax credits, grants, loans,
workforce training program, and other forms of financial assistance shall
require enactment of laws, which might take a considerably long time before
the said options may be implemented.
Additional Recommendation:
While an extensive discussion was made on the tax incentives to BOI-
registered, ecozone-registered and PEZA-registered entities, not enough was
discussed on the tax incentives available to cross border services. There
exists a single jurisprudence providing for the tax rules on cross border
services, i.e., Aces Philippines Cellular Satellite Corporation vs. The
Commissioner of Internal Revenue (G.R. No. 226680. August 30, 2022),
which is the basis of BIR RMC No.5-2024. However, it is recommended
that the same be considered as subject for legislation, to settle, once and for
all, the “grey areas” on taxability and exemptions of cross border services,
by laying down specific rules on the grant of incentives, applicable rate and
allowable deductions for cross border services.
