Co-Sponsorship Speech on Committee Report No.

104
Tax Incentives Management and Transparency Act (TIMTA)
By Senate President Pro-Tempore Ralph G. Recto
03 March 2015

Making Tax Incentives Transparent

You know that a bill is attracting interest when you begin
your sponsorship speech not with the details of the
measure but with a disclaimer.
This bill will not appropriate tax incentives availed; it
merely requires that they be accounted for.
It does not tamper with the fiscal incentives presently
enjoyed by companies; it only requires that their use be
made transparent.
It does not rescind, nor recall any investment perk; it just
obliges companies and the government to record and
report it.
Why? Because in taxation, it doesn't mean that when
taxes are forgiven, you can already forget about them.
So there - just to make it clear. Because the business
section of the papers today reports about the fears of
some foreign businessmen that this bill will usher in a new
regime which requires that tax expenditures be
appropriated by Congress and shall form part of the
national budget.
True, there was a proposal to that effect, from some
groups. But that has been expunged from this bill.
And we have to credit the DBM for pointing out how hard
and impractical it would be to grant tax incentives,
via appropriations.

The viability of an idea is tested on simulations of its

implementation. This saying is true in legislation, as in
cooking : Just because a rose smells better than cabbage
should not lead us to conclude that it makes a better soup.
Mr. President :
Because domestic resources are not enough, we attract
foreign investments to grow the economy and create jobs.
So they will come, we offer a raft of fiscal incentives
income tax holidays, tax- and duty-free importation of raw
materials, capital equipment, spare parts and consumer
goods directly or indirectly used in the registered activity.
And in economic and freeport zones, exemption from local
and national taxes is granted in exchange for paying the
equivalent of 5 percent of GIE (Gross Income Earned).
So when actors De Niro and Di Caprio would play Black
Jack in a casino not far from here, the table and cards
they will be using while placing their bets are probably taxexempt, including the kitchen equipment from which the
canaps they will be munching were made.
The if you build it, they will come mantra happens only in
Field of Dreams. But when it comes to the City of Dreams,
investment perks were probably given first to the
owners before they came and built.
The red carpet we roll out to foreign capital is a tapestry of
income tax holidays, tax breaks, exemptions.
We offer these perks to compensate for our handicaps.

When we have one of the highest power rates in Asia,

when our ports are congested, our roads clogged, our
airports crammed, and even data travel slow in the
information highway, when business is choked with rules,
then we try to offset these with tax holidays and the like.
In short, we indemnify them with incentives.
We also offer the same to local businessmen. Why?
Because while theyre Filipinos, patriotism is soluble
in taxes.
In the FDI race in the region, we lag behind our
neighbors.
In 2013, the US$3.9 billion investments we got paled in
comparison with Thailands $13 billion, Malaysias $12.3
billion, and Indonesias $18.5 billion.
Ours was 1/20th of Singapores $64 billion FDI haul. Even
Vietnam trounced us. The $8.9 billion it got was two and a
half times bigger than ours.
So it came as no surprise that on a per capita basis,
the FDI per Pinoy was 13 dollars and 3 cents in
2011, Vietnam was 84 dollars and 6 cents and
Singapore, a staggering $12,347 FDI received per citizen.
Net FDI of the Philippines accounts for 1.12 percent of its
GDP, which is the lowest in the region.
Mr. President :
I have to stress the above to underscore the value of
investments to our economy and to correct the
misinformation that this bill is about making the enjoyment
of tax incentives complicated and circuitous.

Though I believe that some of our fiscal incentives must

be rationalized, like why is it becoming de rigueur
for shoebox condominiums to be showered with fiscal
incentives, or why businesses guaranteed to rake in huge
profits are not taxed, that exercise is not the intent of this
bill.
Its aim is to create a system which will monitor and track
the tax incentives granted by investment
promotion agencies like BOI, PEZA, TIEZA and freeports
like those in Subic Bay, Clark, Cagayan, Zamboanga City,
John Hay, Morong, Poro Point.
Under the bill, the DOF, in coordination with the BIR and
the BOC, shall create a Tax Incentives Tracking Program,
a single database that will capture all data on tax
incentives.
In short, its like attaching a GPS on every tax incentive
given.
Registered business entities and qualified private
individuals shall submit to the investment promotion
agency or government agency the amount of tax
incentives availed for the year and other data which may
be required, like taxes and licenses paid.
A consolidated annual Tax Incentive Information (TII) shall
then be submitted to the President and to the Chairmen of
the Committees on Appropriations and on Finance of both
houses of Congress as part of the annual Budget of
Expenditures and Sources of Financing or BESF.

Only the aggregate data, however, will be shown in the TII

portion of BESF. This will include estimated claims of the
preceding year, programmed for the present year, and
forecast for next year.
It will not bean-count the tax incentives per company.
But this isnt only about encoding data in a
spreadsheet. The DoF will also evaluate the impact of the
tax incentives on the Philippine economy.
I hope that when it does, it will not see it from the limited
prism of revenue loss, but from a wider vista of jobs
generated and other economic opportunities created, to
cite a few.
The TII is not designed to be a ledger of taxes waived
alone. There are other metrics to be considered, where
the standard formula doesnt apply, like the social good
created by a company which had set shop in a rural area
where others fear to tread.
As I said, it should be an all points-of-view assessment,
not just dominated by one school of thought. One agency
may see a glass three-fourths drained of taxes, while one
would see it as one-fourth full.
One agency will say that the amount of taxes foregone is
big. To which another agency can retort : Which would
you prefer : Getting 10 percent of something, or 100
percent of nothing?
To every complaint of how hard tax collection is, there is
this rebuttal of how job creation and investment attraction
are harder.
The following gives us the data portrait of this quandary.

In 2011, 4,581 registered firms plunked in P92 billion in

investments, exported $3.45 billion worth of goods, and
employed 162,498.
The flipside is that in the same year, 1,318, or under onethird of the total, used P61.3 billion worth of tax
expenditures, of which P45.6 billion was in income tax
holiday claims and P15.7 billion was due to special and
preferential rates.
It is premature to make conclusions out of such a sparse
data. As I said, it is a tough balancing act. But before we
weigh in with our opinion, we need a database, and this
bill creates it.
After all, we may be entitled to our own opinions, but not
to our own facts.