DOF Package 2 Top 10 Rationales As of Feb 28 2020

CTRP – Package 2: Top 10 (as of February 28, 2020) Draft for discussion. Subject to change.
CITIRA
COMPREHENSIVE TAX REFORM PROGRAM
Corporate income tax and incentives reform
Why reform is needed
http://taxreform.dof.gov.ph/publication/recent-presentations/
As of February 24, 2020
1
2
Table of contents
1. Ten reasons why we need to reform the
corporate income tax and incentives system
a. Problems
b. Solutions
2. Summary of reform
3
Ten reasons why we need to reform the

corporate income tax and incentives system
1. To lower the corporate income tax (CIT) rate and make it regionally competitive;
2. To grant incentives more judiciously to reduce fiscal cost amounting to 441 billion pesos
(2.8 percent of GDP) in 2017;
3. To make tax incentives performance-based;
4. To make tax incentives targeted to priority industries;
5. To make tax incentives targeted to priority areas;
6. To make tax incentives time-bound;
7. To make tax incentives transparent;
8. To reduce the abuse of transfer pricing;
9. To improve governance in the grant of tax incentives through the Fiscal Incentives Review
Board (FIRB);
10. To ensure regular and rigorous monitoring and evaluation of the impact of incentives on
the economy through cost-benefit analysis.
4
Problem 1. Highest corporate

income tax rate in the region.
Source: Asian Development Bank and PWC

5
Problem 1. Highest corporate income tax rate in the region.

Due to lower CIT rates in the region, URC Philippines expands internationally, investing 66% of its total capital
assets abroad. This means lost job opportunities here. If our CIT rate were lower, URC can invest here instead.
Revenue1 Capital assets2

Location
PHP billions Percent share PHP billions Percent share
Philippines 84.6 66 33.5 34
Foreign 43.2 34 63.8 66
Note:
1. Revenues are from external customers by geographical market.
2. Capital assets refer to non-current assets excluding financial, deferred tax and pension assets.
3. Most of URC subsidiaries in Asia are located in China, with a 25% CIT rate. 6
Source: 2018 audited financial statements
Solution 1. Lower the corporate income tax rate to

make it regionally competitive and bring back jobs.
7
Problem 2. PHP 441 billion in foregone revenue in 2017 from

tax incentives, many of which are unnecessary incentives.
In 2017, 989,166 registered
1. Firms with no incentives pay the firms, most of which pay
regular rate of 30% of net taxable the regular tax rate.
income. In 2017, over PHP 441
billion (2.8% of GDP) was
2. For example, almost all of the granted to 3,150 firms.
90,000 SMEs pay the regular 30%
In addition, PHP 63 billion
rate.
(0.4% of GDP) was lost due
to possible
3. Firms with incentives pay between abuse of transfer pricing.
6% and 13% effective tax.
Total: PHP 504 billion
(3.2% of 2017 GDP)
8
Source: DTI, TIMTA, and DOF estimates

2015 to 2017 estimated foregone revenue due to tax incentives
2015 2016 2017
Revenue Revenue Revenue
Type of tax foregone foregone foregone
(in billion pesos) (in billion pesos) (in billion pesos)
Income tax incentives 86.3 121.2 126.9

Income tax holiday 53.8 74.5 70.2
Special rate 32.5 46.7 56.7
Customs duties 18.1 57.4 46.5
Import VAT (gross) 159.8 202.1 267.7
Local VAT (gross) 37.0 TBC TBC
Subtotal 301.2 380.7 441.1
Local business tax 1.6 1.0 TBC
Possible leakage from transfer 42.7 52.5 63.1
pricing abuse
9
Total 345.5 434.2 504.2

PHP 441 billion of foregone revenues in 2017 could have funded…
33,000 public markets or
46,000 kilometers of roads or
130,000 daycare centers or
450,000 classrooms.
Source: DOF estimates
10

Incentives are not really needed by most investors.
Approved foreign investments by investment promotion 1. Wider gap between total FDI
agency and foreign direct investments, in USD billions and approved FDI means most
11
investors don’t need incentives.
9.80
4. Prior to 2013, PEZA approved FDI
9 were consistently higher than total
FDI. This suggests that many approved
7 2. PEZA approved investments
USD billions
investment don’t materialize.

have been declining even without
5 Package 2.
3
1.97
1 1.30
3. BOI approved investments are
0.13
higher than PEZA, suggesting that
-1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 firms don’t need forever incentives
BOI PEZA Other IPAs FDI to invest.
Source: PSA
11
Solution 2: CITIRA to promote a fair

and accountable tax incentives system.
Every 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.
12
Problem 3. Incentives are not performance-based.

1. No monitoring of firm
performance on its
“commitment” to increase
export, create jobs, or raise
productivity (e.g., approved vs
actual investment).
2. Counterfactual analysis shows
no significant difference in the
performance between firms
receiving incentives and those
that do not receive incentives.
13
Problem 3. Incentives are not performance-based.

Panel
Outcome Indicators 2014 2015
2012/2015
Summary of Total employment / total assets
counterfactual Total employment / total sales

R&D employment / total employment
analyses Employment and
compensation
Total compensation
Total compensation / total expenses
Average compensation to workers
Total salaries / paid workers
= Registered firms =1 if establishment has R&D spending
R&D R&D expenses / total expenses
performed Total investments / total assets
significantly Land assets / total assets
Capital Total fixed assets / total assets
better than non- investments Building assets / total assets
registered firms Machineries / total assets
Exports Direct exports / sales
Average hours worked
Sales / total employment
Note: Panel data used the 2012 CPBI and the 2015 Productivity
ASPBI with the 2015 TIMTA Sales / paid workers 14
Source: PSA, TIMTA, DOF estimates
Solution 3: CITIRA offers a more competitive incentives

menu that rewards performance with more incentives.
3. Enhanced net operating loss carry-
1. Depreciation allowance of qualified capital over (NOLCO) (3 years over 5 years)
expenditure: 4. Exemption from customs duty on
a. 10% for buildings imported capital equipment, raw
b. 20% for machineries materials, spare parts, or accessories
2. Additional deduction of up to:

a. 100% for research and development (R&D)
b. 100% for training
c. 50% for power expense
d. 50% for labor expense
e. 50% for domestic input expense
f. 50% for reinvestment allowance in
manufacturing industry
15

Under status quo Under CITIRA
Direct labor expense Up to 150% deductiona Up to 150% deduction
Training expense Up to 150% deductionb Up to 200% deduction
Domestic inputs purchased Up to 100% deduction Up to 150% deduction
R&D costs Up to 100% deduction Up to 200% deduction
Power expense Up to 100% deduction Up to 150% deduction
Depreciation allowance - 10% for buildings, 20% for machinery
Reinvestment allowance for - Up to 50% of reinvested profit
manufacturing (within 5 years from time of reinvestment)
Net operating loss carry-over Carried over for the next 3 years Incurred during first 3 years
carried over next 5 years
a. This cannot be availed together with the ITH, among other conditions. The additional deduction shall be 100% if the activity is located in less developed areas. (Does not include TIEZA, SBMA, CDC, and APECO)
b. Additional deduction of 50% of the value of training expenses incurred may be deducted from the 5% final tax due (not to exceed the national governments share of 3%). (Does not include BOI, TIEZA, SBMA,
CDC, APECO, PIA, and PRA)
16

1. Application for incentives shall

constitute an agreement to achieve
targets such as job creation, export,
and productivity.
2. High performance -> incentives
3. Low performance -> no incentives
4. Regular review of firm’s performance
by the FIRB.
17
Problem 4. Incentives are

not targeted to priority industries.
1. There are 342 investment and non-
investment laws that provide tax
incentives outside the tax code.
2. The investment priority plan (IPP)
covers up to 64 percent of all
industries.
3. As a result, up to 69 percent of the
economy in terms of value-added can
potentially be given incentives.
4. These are far from being targeted.
18
Solution 4. A strategic investment priority plan

(SIPP) will be formulated to prioritize incentives.
A 3-year SIPP shall be formulated by BOI and approved by the President.
1. The BOI shall ensure a more

targeted list covering activities
with significant positive
externalities that really matter for
the future.
2. Only the President may propose
activities not in the SIPP that may
be granted more tax incentives.
19
Solution 4. CITIRA shall improve targeting

by giving more incentives to priority industries.
Priority shall be given depending on the industry of a registered project or activity.
Tier Activities
Agriculture, fishing, forestry and agribusiness activities, emerging and

I innovating manufacturing and services industries, infrastructure, transportation,
utilities, and logistics.
Production of supplies, parts, and components that are not locally produced or
II
manufactured.
III Highly technical manufacturing and services activities.
20
Problem 5. Incentives are not targeted by area.

IPA No. of ecozones
As of 2018, there are 544 AFAB 1
ecozones, all of them are APECO 1
separate customs BCDA -
territory, meaning they BOI -
are exempt from all taxes. CDC 1

CEZA 1
PEZA 531
Moreover, 223 or 41
PIA 1
percent of these ecozones
PPMC 1
are in Metro Manila alone, TIEZA 5
and 82 or 15 percent are in SBMA 1
areas around NCR,* for a RBOI-ARMM -
total of 305 or 56 percent. ZCSEZA 1
TOTAL 544
Source: PEZA, IPAs, and DOF staff calculations

Note: The provinces of Batangas, Bulacan, Cavite, Laguna, and Rizal were the provinces considered to be around NCR.
21
Problem 5. Incentives are not targeted by area.
In other
countries,
poorer areas
are where
the ecozones
are located.
22
Source: Individual country investment promotion offices.
Solution 5. The SIPP shall also improve targeting

by giving more incentives to priority areas.
1. Administrative Order 18 series

2019 provides for a moratorium
on the proclamation of new
economic zones in Metro Manila.
2. All future ecozones must be
based on an economy-wide cost-
benefit analysis to determine
their viability and value-added.
23
Solution 5. CITIRA shall also improve targeting

by giving more incentives to priority areas.
Incentives
Priority shall be given to a Category
(ITH + SCIT in years)
registered project or activity A (Basic) 2+3
depending on the economic B (Enhanced) 3+4
level of development of its C (Advanced) 4+4
location: Location/Industry
Tiers Tier I Tier II Tier III
a) NCR and other major
metropolitan areas. NCR and other A B C
b) Areas adjacent to NCR, e.g. metropolitan areas
Bulacan, Cavite, Laguna, Areas adjacent to B B C

NCR (Bulacan, Cavite,
and Rizal. Laguna, Rizal)
c) Less developed areas.
Less developed areas C C C 24
Problem 6. Incentives are not timebound.
We grant the most

generous fiscal incentives
since they are in lieu of all
taxes and given forever.
All other countries have a

maximum duration and it
applies only to few highly
targeted industries and
are not automatically
given.
25

Number of firms enjoying incentives for more than:
A. 10 years - 1,169
B. 15 years - 627
Time, in years Years AFAB BCDA BOI CDC CEZA PEZA PPMC SBMA Total
40-45 1972-1976 1 1
36-40 1977-1981 5 5
31-35 1982-1986 4 4
26-30 1987-1991 45 45 627
21-25 1992-1996 207 32 239
16-20 1997-2001 1 2 272 58 333
11-15 2002-2006 1 434 107 542 1,169
6-10 2007-2011 2 378 3 31 783 161 1,358
0-5 2012-2017 96 6 845 506 189 1,353 5 394 3,394
Total 98 6 1,225 511 220 3,104 5 752 5,921
Source: 2017 masterlist of registered enterprises, TIMTA
26

Dividends declared were equivalent to 133% of income tax incentives received.
Dividends versus tax
incentives, in billion pesos
27
Source: SEC, TIMTA
Solution 6. Approved standard activities shall be given incentives

for a 5, 7, or 8 year period, renewable if they meet the criteria.
Income tax holiday
Up to 2, 3, or 4 years, depending on the location and industry, subject to the SIPP and FIRB review.
Special rate
After ITH, special rate for up to 3 or 4 years depending on the location.
• Special rate of 8, 9, and 10 percent on gross income earned (GIE).
• National government share of 6, 7, and 8 percent, with LGU and IPA share at a fixed 2 percent.
Special rate National

Year LGU and IPA (%)
on GIE (%) government (%)
2020 8 6 2
2021 9 7 2
2022 onwards 10 8 2
28
Solution 6. A sunset provision shall be given to existing incentives.

After the period ends, they can reapply again for the new incentives.
Sunset provision for existing incentives
For RBEs enjoying existing 5% GIE:
For RBEs which availed of ITH: Continue Number of years enjoying Number of years allowed to
until remaining period ends. If the firm 5% GIE continue GIE at a rate of 8%
hasn’t availed itself of the ITH yet, they 5 years below 5
may use the ITH for the period specified
by their registration. 5 to 10 years 3
Above 10 years 2
Notes:
A. Firms have the option to immediately shift to the new package during the transition phase.
B. After the sunset, firms can apply again for the new package of incentives if they qualify.
C. Up to 7 years sunset can be given in special cases if a firm or project meets any of the ff. conditions:
i. Registered exporter that exports 100% of their goods and services,
ii. RBE that employs at least 10,000 Filipinos directly engaged in the production of the registered project, or
iii. Registered enterprises engaged in footloose projects or activities. 29
Problem 7. Incentives are not transparent.

1. Investment promotion agencies (IPAs) do not
publicly disclose the names of firms and
amount of incentives given.
2. Likewise, firm-level benefits, such as exports,
investment, and employment figures are not
submitted as part of TIMTA.
3. The TIMTA law requires firm level incentives
data but only industry level benefits data
4. There is a lot of confidentiality, discouraging
public analysis and full transparency.
30
Solution 7. An enhanced monitoring system of the incentives, including the

collection of detailed information on the cost and benefits of incentives.
1. Integrate tax expenditure reporting into the budget

process.
a. DOF to submit to DBM details of tax incentives
availed, including estimated claims and
programmed fiscal incentives for the following
years.
b. Incentives will not be budgeted but should be
reported as a tax expenditure for transparency
purposes.
2. Publish the data pertaining to the amount of tax
incentives, tax payments, and other related
information, including benefits data, per industry
group regularly.
31
Problem 8. Transfer pricing is one of the top abuses of tax incentive

regimes, resulting in substantial revenue loss for the government.
Top abuses of fiscal incentives
1. Export zones – leakages into domestic economy
2. Regional investment incentives and enterprise zones – diverting activities to outside
the region or zone
3. Transfer pricing schemes with related entities (through sales, services, loans,
royalties, and management contracts)
4. Disguising or burying non-qualifying activities into qualifying activities
5. Churning or fictitious investments (lack of recapture rules)
6. Schemes to accelerate income (or defer deductions) at the end of a tax holiday period
7. Overvaluation of assets for depreciation, tax credit, or other purposes
8. Employment and training credits – fictitious employees and phony training programs
9. Domestic firms restructure as foreign investors
10. Existing firms transform into new entities to qualify for incentives
Source: Comparative Tax Policy and Administration program, Harvard Kennedy School 32

Firm A – cost structure
In 2017, an estimated 100 B
63 billion pesos in 80
D
Percent
A
government revenues was 60 C
lost due to possible 40

E
transfer pricing abuse and Exempt

Direct costs
Special
Indirect costs
Regular
Net taxable income
misallocation of profits Note: Based on cost structure of service

A company under three tax regimes can shift costs among activities
to minimize taxable income and thus tax liability.
and costs.
Possible abusive allocation schemes to minimize tax:
A. Firm A can pad direct costs with indirect costs in order to minimize tax payments under the 5% GIE
regime.
B. Firm A can shift income under the regular to the ITH regime to minimize income tax.
C. Firm A can shift direct and indirect costs under ITH to the regular regime to minimize tax payments.
D. Firm A can shift indirect costs under 5% GIE regime to regular regime to claim such as deductions
and minimize tax payments.
E. Firm A can shift direct costs under the ITH regime to the 5% GIE regime to claim such as deductions
and minimize tax payments. 33

Below is the estimated tax foregone if:
1. Special and regular activities had the same cost structure as exempt activities, and
2. Regular activities had the same cost structure as special activities.
Estimated CIT foregone from potentially abusive transfer pricing
in billion pesos 2011 2012 2013 2014 2015 2016 2017
Estimated leakage from
Goods* 17.5 25.5 23.9 29.6 34.0 43.7 51.7
Exempt and special rate 3.0 3.7 2.9 3.0 6.9 8.1 10.3
Special and regular rate 14.5 21.8 21.1 26.6 27.1 35.6 41.4
Exempt and regular rate** 18.8 6.2 34.2 9.5 3.1 6.5 5.6
Services 8.4 10.9 11.2 10.4 8.6 8.8 11.4
Exempt and special rate 0.4 0.8 0.7 4.2 4.0 2.2 2.3
Special and regular rate 7.9 10.1 10.5 6.2 4.6 6.5 9.1
Exempt and regular rate** 7.9 6.2 7.1 10.7 9.9 17.9 18.9
Total 25.9 36.5 35.1 40.0 42.7 52.5 63.1
Sources: BIR, DOF staff estimates
Notes: *Goods refer to manufacturing, and wholesale and retail trade. Services refer to all other industries.
**Leakages from exempt and regular rates were not included in the total amount as they may result in double counting of leakages.
34
Solution 8: Increased GIE rate to

disincentivize transfer pricing abuse.
The increased GIE rate will make the

enhanced deduction option more
attractive, potentially resulting in
fewer instances of transfer pricing
abuse.
35
Problem 9. There are multiple investment promotion agencies

with the power to grant incentives, and the DOF has very little say.
13 Investment Promotion Agencies (IPAs)
36
Problem 9. There are multiple investment promotion agencies

with the power to grant incentives, and the DOF has very little say.
IPA DOF board membership
Aurora Pacific Ecozone (APECO) None

Authority of the Freeport Area of Bataan (AFAB) None
Bases Conversion and Development Authority (BCDA) None
Board of Investments (BOI) None
Clark Development Corporation (CDC) None
Cagayan Economic Zone Authority (CEZA) None
Member
Philippine Economic Zone Authority (PEZA)
(1 voice out of 13 members)
Member
PHIVIDEC Industrial Authority (PIA)
(1 voice out of 10 members)
Poro Point Management Corporation (PPMC) None
Subic Bay Metropolitan Authority (SBMA) None
Tourism Infrastructure and Enterprise Zone Authority (TIEZA) None
Zamboanga City Special Economic Zone Authority (ZCSEZA) None
Regional Board of Investments - ARMM (RBOI-ARMM) None 37
Solution 9. The FIRB will have oversight function over all IPAs
and approve all incentives. The DOF secretary chairs the FIRB.
All IPAs will retain their one-stop functions for investors
38
Solution 9. The FIRB will have oversight functions over all

IPAs, and approves all incentives, unless delegated.
Current structure Proposed structure
PEZA, BOI, CEZA, PPMC,

Congress FIRB
TIEZA, and all other IPAs
Decides on the Oversight and approver of all
Process and approve incentives package tax incentives and subsidies*
application for incentives
for private entities
IPAs BOI
Recommends to FIRB Determines the priority
qualified RBEs for incentives sectors through the SIPP
FIRB
CEZA PPMC PIA PEZA
Process and approve ZCSEZ TIEZA SBMA CDC
application for subsidies for
APECO BCDA AFAB RBOI
GOCCs and other
government agencies
*FIRB may delegate approval to IPA or the Technical Committee.
39

Current Proposed
Board
DOF** DTI DBM NEDA BIR BOC NTRC DOF** DTI* DBM NEDA OP
Note: Secretary, Commissioner, Executive Director level Note: Secretary level
Technical
Committee DOF** DTI DBM NEDA BIR BOC NTRC DOF** DTI DBM NEDA OP BIR BOC
Note: Next in rank level Note: Next in rank level
Secretariat
NTRC NTRC, head is DOF asec
**Chairperson
*Co-chairperson
40

41

Expanding the FIRB will…
1. Ensure the prudent grant of
incentives
that are aligned with national
priorities;
2. Improve transparency and
accountability
in the grant of fiscal incentives; and
3. Ensure that the cost and benefit of
tax incentives are consistently
measured and factored in drawing
up fiscal policies.
42
Problem 10. No regular cost benefit analysis (CBA) has ever been
conducted to determine the impact of incentives on the economy.
1. There has been
little to no effort
to do a regular
CBA analysis. July 2, 2019
a. AFAB only
started
working on a
CBA starting
2018.
b. PEZA wants to
begin one
after decades
of existence.
43
Solution 10. The first comprehensive CBA analysis has been undertaken
by DOF. Going forward, the FIRB shall regularly conduct the CBAs.
Summary of
first-ever
compre-
hensive CBA
conducted by
DOF
Note: 2015-2017 averages 44

Solution 10. The first comprehensive CBA analysis has been undertaken
by DOF. Going forward, the FIRB shall regularly conduct the CBAs.
1. The FIRB shall “…conduct regular

monitoring and evaluation of investment
and non-investment fiscal incentives, such
as using cost-benefit analysis (CBA), to
determine their impact on the economy
and whether agreed performance targets
are met.”
45
CITIRA to promote a fair and

accountable tax incentives system.
Every 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.
46
CITIRA is aligned with OECD principles on

effective and transparent framework for tax incentives
1. Make public a statement of all tax incentives for investment and their objectives within a governing
framework.
2. Provide tax incentives for investment through tax laws only.
3. Consolidate all tax incentives for investment under the authority of one government body, where possible.
4. Ensure tax incentives for investment are ratified through the lawmaking body or parliament.
5. Administer tax incentives for investment in a transparent manner.
6. Calculate the amount of revenue forgone attributable to tax incentives for investment and publicly release
a statement of tax expenditures.
7. Carry out periodic review of the continuance of existing tax incentives by assessing the extent to which
they meet the stated objectives.
8. Highlight the largest beneficiaries of tax incentives for investment by specific tax provision in a regular
statement of tax expenditures, where possible.
9. Collect data systematically to underpin the statement of tax expenditures for investment and to monitor
the overall effects and effectiveness of individual tax incentives.
10. Enhance regional cooperation to avoid harmful tax competition.
Source: Background paper for the G20 Development Working Group, prepared by the IMF, OECD, United Nations and the World Bank. 47
CITIRA promotes a fair and accountable tax incentives system

Simplification and
Lower the corporate rationalization of tax
income tax rate from incentives system by
30 to 20 percent by repealing and
1 2029. 2 amending some 19
Year 2019 2020 2021 2022 2023 special laws, and
CIT rate 30 29 28 27 26
2024 2025 2026 2027 2028 2029
putting those qualified
25 24 23 22 21 20
in the SIPP.
Provide incentives
Fair and accountable
to attract industries
tax incentives system
consistent with
with enhanced FIRB
development
3 functions including 4
regular CBA, IPA priorities through
oversight, and additional
incentives approval. deductions and a
more targeted SIPP. 48
Rationalize investment tax incentives
One menu of incentives No double registration Only new and qualified

applicable to IPAs of activities investment/ activities shall be
granted income tax incentives
Exemption from customs duty Domestic firms allowed if Priority shall be given to registered projects and
of capital equipment, raw included in the strategic activities outside Metro Manila and adjacent areas, and
materials, spare parts, and investment priority plan to highly technical manufacturing and services activities
accessories
49
More than tax incentives, investors need...
Skilled and hardworking talent

Ambitious infrastructure Sizeable small and medium
pool that needs sufficient
development program that enterprise community that
human capital investments.
requires fiscal commitment. deserves to be treated fairly
Solution: investment in K12,
Solution: PHP 8 trillion BBB through easier doing business
TESDA, UHC
processes. Solution: EODB
50
The timely passage of CITIRA is crucial in

reducing uncertainty among investors.
A. Multiple fiscal incentives rationalization bills have been filed since 1995 or the 10th congress.
B. The main cause of uncertainty is the long delay of legislating the reform, not the incentive package.
Investors prefer to wait until CITIRA is passed before investing. The sooner it is passed, the faster
investment will flow in.
C. The DOF has been consistently pro-active and did not waste time in submitting the proposed package 2 last
January 2018, immediately after the passage of TRAIN in Dec 2017. The House approved and transmitted
TRABAHO last September 2018, but the Senate conducted only one hearing before the mid-term elections.
51
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For questions, you may directly email us at:
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DOF Package 2 Top 10 Rationales As of Feb 28 2020

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CTRP – Package 2: Top 10 (as of February 28, 2020) Draft for discussion. Subject to change.

Corporate income tax and incentives reform

Why reform is needed

Ten reasons why we need to reform the

Problem 1. Highest corporate

Source: Asian Development Bank and PWC

Problem 1. Highest corporate income tax rate in the region.

Revenue1 Capital assets2

Solution 1. Lower the corporate income tax rate to

Problem 2. PHP 441 billion in foregone revenue in 2017 from

Problem 2. PHP 441 billion in foregone revenue in 2017 from

Income tax incentives 86.3 121.2 126.9

Problem 2. PHP 441 billion in foregone revenue in 2017 from

33,000 public markets or

46,000 kilometers of roads or

130,000 daycare centers or

Problem 2. PHP 441 billion in foregone revenue in 2017 from

investment don’t materialize.

Solution 2: CITIRA to promote a fair

Problem 3. Incentives are not performance-based.

Problem 3. Incentives are not performance-based.

counterfactual Total employment / total sales

Solution 3: CITIRA offers a more competitive incentives

2. Additional deduction of up to:

Solution 3: CITIRA offers a more competitive incentives

Solution 3: CITIRA offers a more competitive incentives

1. Application for incentives shall

Problem 4. Incentives are

Solution 4. A strategic investment priority plan

1. The BOI shall ensure a more

Solution 4. CITIRA shall improve targeting

Agriculture, fishing, forestry and agribusiness activities, emerging and

III Highly technical manufacturing and services activities.

Problem 5. Incentives are not targeted by area.

are exempt from all taxes. CDC 1

Source: PEZA, IPAs, and DOF staff calculations

Problem 5. Incentives are not targeted by area.

Solution 5. The SIPP shall also improve targeting

1. Administrative Order 18 series

Solution 5. CITIRA shall also improve targeting

Bulacan, Cavite, Laguna, Areas adjacent to B B C

Problem 6. Incentives are not timebound.

We grant the most

All other countries have a

Problem 6. Incentives are not timebound.

Source: 2017 masterlist of registered enterprises, TIMTA

Problem 6. Incentives are not timebound.

Solution 6. Approved standard activities shall be given incentives

Special rate National

Solution 6. A sunset provision shall be given to existing incentives.

Problem 7. Incentives are not transparent.

Solution 7. An enhanced monitoring system of the incentives, including the

1. Integrate tax expenditure reporting into the budget

Problem 8. Transfer pricing is one of the top abuses of tax incentive

Problem 8. Transfer pricing is one of the top abuses of tax incentive

In 2017, an estimated 100 B

lost due to possible 40

transfer pricing abuse and Exempt

misallocation of profits Note: Based on cost structure of service

Problem 8. Transfer pricing is one of the top abuses of tax incentive

Solution 8: Increased GIE rate to

The increased GIE rate will make the

Problem 9. There are multiple investment promotion agencies