IMF Backs Removal of Tax Exemptions, Incentives

Manila Bulletin, May 22, 2016 | Go to article overview

IMF Backs Removal of Tax Exemptions, Incentives


The International Monetary Fund (IMF) is urging the Philippine government to eliminate or drastically reduce its tax exemptions and incentives given to corporations, particularly for mass housing projects.

In a report submitted to the Department of Finance (DOF), the Washington D.C.-based institution said that tax incentives for enterprises should be targeted with a sunset provision, while tax holidays for mass housing projects should be repealed by Congress.

IMF also added the government should prioritize the phase out of its investment tax incentives before discussing any proposed reduction of corporate income tax.

"The hundreds of tax exemptions and incentives that are now granted should be reduced, with a more controlled process for determining targeted sectors in which they are potentially effective," IMF said.

In particular, IMF said the five percent perpetual substitute tax for all enterprises that were granted tax holidays under the Philippine Economic Zone Authority (PEZA) program should be subject to a sunset provision.

The institution instead suggested that tax incentives should be targeted to foreign direct investment, not to broad domestic sectors that are already productive.

"A number of technical aspects of the current cross border corporate tax provisions should be adjusted... in order to make the system more appropriate for the emerging environment in which there is increasing outbound direct investment... as well as inbound investment," IMF said. …

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