Ex-post Cost-Benefit Analysis of Tax Incentives

in the Philippines’ Tax Reform Program

KC Joy Bofetiado
May 2023
 The purpose of this CBA is to evaluate whether the tax incentives provided to recipients
have a net positive impact on the economy by weighing the benefits against the costs.

This CBA is an ex-post analysis of the tax incentives given to recipients as part of
a tax reform program in the Philippines. The goal of the analysis is to determine if the
tax incentives benefit the economy more than they cost. The analysis uses various
methods such as estimating implicit labor subsidy, performing a counterfactual analysis,
net government revenue approach, and accounting of direct and indirect cost and
benefit. The CBA takes into account both direct and indirect costs and benefits,
including taxes paid by firms and employees, tax expenditure on income, duties, VAT,
local taxes, leakage due to transfer pricing abuse, administrative cost, employment
multiplier, industry multiplier, fiscal multiplier, etc. The CBA concludes that future grant
of incentives must be anchored on a cost-benefit analysis and that at the industry level,
CBAs must be performed before any industry is included in the SIPP (Department of
Finance (DOF), 2018).
The benefits and costs accounts presented in the CBA seem to be
comprehensive and sufficient. The CBA takes into account both direct and indirect costs
and benefits, including taxes paid by firms and employees, tax expenditure on income,
duties, VAT, local taxes, leakage due to transfer pricing abuse, administrative cost,
employment multiplier, industry multiplier, fiscal multiplier, etc. These accounts provide
a detailed overview of the various factors that contribute to the overall cost-benefit
analysis of tax incentives.
The methods used for estimating the benefits and costs appear to be up-to-date
and relevant. The CBA employs various methods such as estimating implicit labor
subsidy, performing a counterfactual analysis, net government revenue approach, and
accounting of direct and indirect cost and benefit. These methods are commonly used in
cost-benefit analysis of tax incentives (Kronfol, & Steenbergen, 2020).
The recommendation of the CBA is based on the net benefit/cost and appears to
be rational. The CBA concludes that future grant of incentives must be anchored on a
cost-benefit analysis and that at the industry level, CBAs must be performed before any
industry is included in the SIPP (DOF, 2018). This recommendation is in line with best
practices for evaluating tax incentives (Chen, 2015).
REFERENCES
Chen, D. (2015). The Framework for Assessing Tax Incentives: A Cost-Benefit Analysis
Approach. United Nations. Retrieved last May 19, 2023, from
https://www.un.org/esa/ffd/wp-content/uploads/2015/04/2015TIBP_PaperChen.p
df
Department of Finance (2018). Package 2 D. Cost-benefit analysis (CBA). Retrieved
last May 18, 2023, from
https://taxreform.dof.gov.ph/wp-content/uploads/2019/06/Cost-benefit-analysis-
long-version-as-of-Oct15.pdf
Kronfol, H., & Steenbergen, V. (2020). Evaluating the Costs and Benefits of Corporate
Tax Incentives: Methodological Approaches and Policy Considerations. World
Bank Open Knowledge Repository. Retrieved last May 19, 2023, from
https://openknowledge.worldbank.org/entities/publication/9e5e7d05-c4da-55cd-
bb3b-ec3566b65c35