PEZA firms receive P50-B tax perks annually – NEDA study

Published October 8, 2020, 1:25 PM

by Bernie Cahiles-Magkilat

Registered business enterprises (RBEs) of the Philippine Economic Zone Authority (PEZA) accounted for 94.5 percent of all exports of the country and also received most of the tax incentives of between P42.5 billion to P50.3 billion each year from 2016-2018, according to a cost benefit analysis (CBA) conducted by the National Economic Development Authority (NEDA).

PEZA revealed these figures quoting a recent presentation by NEDA on the performance of the various investment promotion agencies in the country. There were 8 government investment promotion agencies (IPAs) that submitted data covering 1,687 companies with PEZA contributing most of the data.

NEDA conducted the CBA study in view of Republic Act No. 10708 or the Tax Incentives Management and Transparency Act (TIMTA). Under the law, NEDA has been tasked to conduct a CBA on investment incentives to determine the impact of such incentives to the Philippine economy. 

RBEs under PEZA made an average 94.5 percent of all exports while they also acquired the most imports (92.7% to 97.0%) for three years, while Subic Bay Metropolitan Authority (SBMA) took up most of the residual.   Industry-wise, the manufacturing sector was highly dependent on imports, comprising around 96 percent.  

The study also showed that RBEs under PEZA received most of the tax incentives, about P42.5 billion to P50.3 billion each year of the three-year coverage. This is equivalent to 16.6 percent to 18.26 percent of the corporate income tax recorded from 2016 to 2018. Also, RBEs under PEZA had stockholders’ equity equivalent to 4.17 percent to 5.69 percent of the equity market. 

In terms of economy-wide impacts, the analysis said “Tax incentives increase domestic production” and “the export performance under the scenario with tax incentives indicated rising growth.” It also stated that tax incentives appeared to help reduce poverty levels. 

In terms of employment generation, PEZA, SBMA and Authority of Free Port Bataan (AFAB) contributed the most among the IPAs. Over the three years, 78.09 percent of employment were generated by RBEs under PEZA. 

Some of the economy-wide impacts cited by NEDA include: that tax incentives increase domestic production, and tax incentives appeared to generate more investments;

The export performance under the scenario with tax incentives indicated rising growth. All export growth multipliers were positive and rising. However, the export growth was generally slightly slower compared to a no-tax-incentives regime. 

As supplies increase, additional incomes are generated and the bases of the direct income taxes expand. Personal income tax collection was 3.17 percentage points higher with tax incentives. 

A household wellbeing measure in the form of equivalence variation suggests that households are better off with the tax incentives. 

The study also said that tax incentives appeared to help reduce poverty levels. However, disaggregation suggests that rural households benefit more from the tax incentives. 

Senate President Pro-Tempore Ralph Recto, who is also the author of RA 10708, noted that NEDA will be the final arbiter between the Department of Finance, on the revenue side, and Department of Trade and Industry/Board of Investments, on the investments side.  DOF has pushed for the rationalization of PEZA, which is under DTI, incentives regime under the CREATE Bill. PEZA has called for a status quo of its incentive packages, especially during this economic downturn.

 PEZA Director General Charito B. Plaza cited the statement by Senator Recto during his interpellation on the CREATE Bill that “[the CBA shows that] the current tax incentives package is favorable to the Philippines” and that “benefits outweigh the costs.” 

Plaza underlined the CBA vindicated PEZA’s globally-competitive, tried and tested tax incentives that it indeed generates more investments and contribution to the economy. 

“The findings of the NEDA CBA shall be a credible study that evidence PEZA’s clarion call to the retention of its tax incentives because it is key attraction to export-based investments in the country. More than labelling tax incentives as foregone taxes, tax incentives helped generate investments, employments, and dollar earnings from exports,” she said. 

“The findings in the preliminary study proves the importance and effectiveness of the tax incentives being given to investors and their presence in the country,” Plaza added. 

Plaza noted, “The findings show that PEZA’s incentives are in fact performance- and target-based and it has undeniable positive effect or impact to the local government units (LGUs) hosting the ecozones.”