House leader seeks accounting of tax incentives to private individuals and firms
A House leader is pushing for more transparency in the present system of granting incentives through the creation of a Tax Expenditure Account (TEA) in the annual national budget to reflect the amount of tax incentives granted by the government to private individuals and corporations.
Rep. Jocelyn Limkaichong (1st District, Negros Oriental), chairperson the Committee on Appropriations, raised the proposal noting the present system of accounting for tax expenditures in the General Appropriations Act (GAA) only includes tax incentives granted to National Government Agencies and Government-Owned or -Controlled Corporations (GOCCs).
“The bulk of tax incentives which are those granted to private individuals and corporations are not accounted for. Hence, the magnitude of these incentives remains largely unknown. The proposed measure aims to address this serious information gap without posing additional administrative burden to investors,” said Limkaichong.
She further said it is critical to instill transparency in the system of tax incentives in line with the Aquino administration’s battle cry of open and good governance.
“Transparency is a factor in creating a better fiscal and investment environment. It empowers all stakeholders– the government, the business sector and civil society in general– by allowing for greater public scrutiny of the government’s actions, which in turn enhances the certainty and predictability of government policy formulation and implementation,” she said.
House Bill 6785 or the proposed “Tax Incentives Management and Transparency Act” provides it is the declared policy of the State to promote fiscal prudence and transparency in the proper management and grant of tax incentives by developing means to measure the government’s fiscal exposure from these expenditures to enable the government analyze the fiscal cost and optimize the economic impact and benefit of such incentives.
It provides that in terms of accounting and claiming of tax incentives, the amounts pertaining to tax incentives administered by Investment Promotions Agencies (IPAs) and other government agencies to private individuals and corporations, and specified in accordance with a schedule to be prepared by the Department of Finance (DOF), shall be treated as both revenue and expenditure of the General Fund.
Moreover, revenues of all persons, whether natural or juridical, shall be subject to the regular tax rate and that incentives to which they are entitled shall be administrated by the relevant IPA or other government agency through utilization of the Tax Expenditure Account (TEA). Registered enterprises qualified for tax incentives shall subject their claim for incentives to their respective tax incentive administering body.
After review and approval of their tax incentive claim, the IPA or government agency concerned shall be responsible for requesting the approved amount from the Department of Budget and Management (DBM) based on the bill.
The TEA account shall be created in the annual GAA, from which tax incentives, as may be determined by the IPAs and other government agencies in accordance with the law, are accounted. The IPAs and other government agencies concerned shall account in the TEA all tax incentives that they grant, the bill provides.
Tax expenditures for purposes of the proposed Act shall be deemed automatically appropriated provided that no obligations shall be incurred or payments made from the TEA, thus automatically appropriated except as issued in the form of regular budgetary allotments.
The Bureau of Internal Revenue (BIR) Commissioner shall exercise his or her power to make assessments and prescribe additional requirements for tax administration and enforcement as specified under Section 6 of the National Internal Revenue Code of 1997, as amended.
The bill also provides that the DOF, together with the BIR and the Bureau of Customs, shall create a single database of all tax incentives granted by the IPAs and other government agencies, monitor the incentives granted, and submit an annual Tax Expenditure Report to the President and to the Chairman of the House Committee on Appropriations and the Chairman of the Senate Committee on Finance as part of the annual GAA.
The failure of an IPA or other government agency to submit the tax expenditure report and other data required, by reason of the fault or failure of any registered enterprise, shall be ground for the suspension of the incentives being enjoyed by such registered enterprise or special group for the particular taxable year. Repeated violations shall be penalized with the cancellation of the enterprise’s registration.
A joint Congressional Oversight Committee shall be constituted in accordance with the provisions of the proposed Act.