The government incurred hefty foregone revenues due to fiscal incentives enjoyed by favored enterprises one year before the landmark congressional approval of the corporate recovery and tax incentives for enterprises (CREATE) law.
According to the report submitted by the Department of Finance - Domestic Finance Group (DOF-DFG), fiscal incentives have cost the national government some P481.7 billion in foregone revenues in 2019.
The substantial amount already represents a decrease from the P518.7 billion in tax perks given away in 2018 through the various investment promotion agencies (IPAs) and through fiscal incentives granted to cooperatives, DOF said.
Of the total incentives granted to a select group of corporations, P149.28 billion or almost a third of the total were in the form of income tax incentives.
These include the income tax holiday accounting for P68.4 billion (14.2 percent); the special income tax rate for IPA-registered enterprises with P66.41 billion (13.8 percent), and the income tax incentives for cooperatives with P14.47 billion (3 percent).
Moreover, the incentives for the value-added tax (VAT) reached P283.45 billion (58.8 percent); exemptions from customs duties cornered P47.59 billion (9.88 percent) and the percentage tax incentive availed by cooperatives amounted to P1.38 billion (0.29 percent).
The DOF study covered 11,431 enterprises that filed their tax returns, of which 5,749 were IPA-registered firms and 5,682 were cooperatives.
Of those that availed of income tax incentives, 3,083 were IPA-registered companies and 4,371 were cooperatives.
For 2019, the manufacturing sector took the biggest share at 66.7 percent of the total tax incentives, amounting to P321.3 billion.
The services and energy sectors were granted P114.8 billion (23.83 percent) and P26.36 billion (5.47 percent) of incentives, respectively.
Tax perks for the other sectors, such as agriculture and fisheries, amounted to P19.24 billion or 3.99 percent of the total tax expenditures for 2019.
In the case of cooperatives, it received a total of P32.2 billion-worth of tax incentives.
Finance Assistant Secretary Ma. Teresa Habitan said the majority of cooperatives that enjoyed tax perks were service cooperatives in the banking and financing industries.
These foregone revenues from tax incentives were based on the perks granted to registered enterprises before the enactment of the CREATE law, which was signed into law in March 2021.
However, CREATE has retroactive provisions that affect 2020 income tax payable.
“The DOF expects future fiscal and non-fiscal incentives to be rationalized to ensure that these are performance-based, targeted, time-bound, and transparent, following the enactment of the CREATE Law last March,” the department said.