Perks rationalization seen key to PH upgrade

By Iris C. Gonzales, The Philippine Star

Posted at Oct 08 2012 07:36 AM | Updated as of Oct 08 2012 07:30 PM

MANILA, Philippines - The passage of a measure that would rationalize fiscal incentives could help the Philippines achieve the much-awaited credit rating upgrade, the International Monetary Fund’s new resident representative for the Philippines said.

“That’s significant, so potentially it can help (secure an upgrade),” Shanaka Jayanath Peiris told The STAR in a chance interview on Friday on the sidelines of a fiscal incentives workshop of the IMF and the Department of Finance (DOF).

Peiris said the impact of the fiscal incentives measure is estimated at one percent to two percent of gross domestic product (GDP) which is a significant amount that could help boost revenues and consequently, help the Philippines attain a credit rating upgrade.

In supporting the measure that would rationalize fiscal incentives given to investors, Peiris said the Philippines could still attract investments without necessarily giving up revenues.

The Departments of Trade and Finance are pushing for a measure that would rationalize fiscal incentives given to investors. A bill has been filed in Congress but lawmakers have yet to approve the measure.

The position of the Finance department is that there should be a limit in the grant of incentives to investors, only with the possibility for renewing these incentives if deemed necessary.

During the workshop, Finance officials said there should be scrutiny and transparency in the grant of incentives.

In a separate presentation, IMF Fiscal Affairs Department deputy director Sanjeev Gupta said governments including the Philippines can rationalize fiscal incentives by ensuring that it conforms with international practice, that these are simple and transparent and that tax expenditures are published periodically.

Furthermore, he said that tax holidays must be eliminated or reduced and should instead be replaced with investment linked tax incentives.

“Commonly used incentives are tax holidays and special economic zones but they result in economic distortions, rent-seeking behavior and revenue losses that exceed potential benefits while depriving governments of much-needed revenue,” Gupta said during the workshop.

For his part, IMF’s Peiris said the DOF should have a bigger role in the handling of fiscal incentives as what is the practice in other countries.

“The DOF should have a more significant role,” he said.

Aside from the fiscal incentives measure, the government is also pushing for a measure that would raise taxes on sin products such as alcohol and cigarettes.

Revenues to be raised from the passage of the measures would fund the government’s social services projects such as access to quality health care, economic managers have said.